A version of this article first appeared in the CNBC Property Play newsletter with Diana Olick. Property Play covers new and evolving opportunities for real estate investors, from individuals to venture capitalists, private equity funds, family offices, institutional investors and large public companies. Sign up to receive future issues straight to your inbox.
The all-important spring housing market is in full swing, but expectations are lagging due to the war in Iran and its impact on the U.S. economy and consumer sentiment.
Mortgage rates, previously forecast this spring to be far lower than last year, are now much higher, and worries about employment and inflation are leaving pent-up demand from homebuyers cold.
Buyers were more worried about the economy and mortgage rates than home prices in the first quarter of this year, according to real estate agents who participated in the CNBC Quarterly Housing Market Survey.
“They’re afraid of war, they’re afraid of gas prices, [for] their job security,” said Faith Harmer, an agent in the Las Vegas area.
The CNBC Housing Market Survey is a nationwide survey of randomly selected real estate agents in the United States. Responses for the first quarter survey were collected between March 24 and March 30. This quarter, 70 agents shared their insights.
When asked about their buyers’ top concern, about a third of agents cited the economy, while another third cited mortgage rates. The latter represented a big increase of just 26% in the fourth quarter.
Only 9% of agents in the first quarter survey said prices were the biggest concern for their buyers, compared to 18% in the previous quarter.
This should come as no surprise, as the average interest rate on the 30-year fixed mortgage hit a low of 5.99% the day before the Iran War began and then began to rise. It is now at around 6.5%.
But while most agents reported that prices were either flat or falling, almost twice as many agents (29%) reported that property prices rose in the first quarter than in the previous quarter. Price dynamics can vary greatly depending on the market and region of the country.
But affordability isn’t improving as much as most experts had predicted. When asked how affordability impacts buyers, 19% of agents said it is the reason they are exiting the market. That was up from just 11% at the end of last year.
More than half of the agents reported at least one contract termination.
“Buyers who were hesitant and decided to buy are now hesitant and going the other way and saying, ‘I’m not going to buy,'” said Eric Bramlett, a broker in Austin, Texas.
As buyer demand declines, homes stay on the market longer. In the first quarter, 31% of agents said their listings were on the market for more than six weeks, compared to 26% in the fourth quarter.
“We had one just recently where they wanted what they wanted and they didn’t want to settle on a price that the market could bear,” said Harmer, the Las Vegas agent. “So in the end they just took it off the market.”
Sellers are now more worried about this waiting time. Fully 37% of responding agents said time spent on market was their sellers’ biggest concern, compared to 30% at the end of last year.
As a result, price became less important as a primary concern for sellers, falling from nearly half of agents ranking it first to 39%.
Still, fewer agents reported price reductions than in the previous quarter, but that could be due to seasonal dynamics and the impact of lower mortgage rates in the middle of the first quarter, which gave buyers more purchasing power.
This could also be why fewer agents reported having to remove homes from listings compared to the fourth quarter, when agents reported a slower-than-usual decline in the market with more frustrated sellers.
Even as concerns about the economy and interest rates grow, brokers in the first quarter still said the market was either in the buyer’s favor or balanced. The share calling it a buyer’s market fell from 42% to 36% quarter over quarter, likely due to headwinds from new buyers – higher mortgage rates, the war and a weaker job market. And sellers are taking note.
“Two sellers who had planned to go public in May had already decided, ‘Let’s wait, let’s look for our next house to buy later in the summer and then we’ll try listing in the fall,'” said Dana Bull, a Boston-area agent. “So they originally thought spring would be perfect for them because it just felt like it was going to be the best time, and now they’re not so confident and want to wait.”
Just over half of brokers surveyed said they expect the market to improve over the spring, but that share is down significantly from late last year when there was no war in sight.
A larger share of brokers said they expect the market to remain at last quarter’s levels, which is significant as the market moves from what is historically the weakest season for homebuilding to what is typically its busiest season.
Get Property Play straight to your inbox
CNBC’s Property Play with Diana Olick covers new and evolving opportunities for real estate investors, delivered weekly to your inbox.
Sign up here to get access today.
Choose CNBC as your preferred source on Google and never miss a moment from the most trusted name in business news.