The popular spring home buying season is just increasing. However, one analyst warns that it can be a bust.
Ian Shepherdson, chief economist and founder of research consulting firm Pantheon Macroeconomics, predicts that the pace of home sales will slow dramatically this year. In his research notes, he predicted that pre-owned home sales would decline by about 25% from the annual pace set in February of 6.02 million to 4.5 million by the end of summer.
“The housing market is in the early stages of a significant decline in activity, and perhaps as soon as spring comes, home prices will rise sharply,” Shepherdson said in a research note distributed Sunday. ..
As evidence of this expected slowdown in home sales, Shepherdson pointed out the demand for mortgages. According to the latest data on mortgage applications from the Japanese Bankers Association, the number of loan applications used to buy a home has decreased by more than 8% compared to a year ago. By comparison, refinancing demand has fallen by almost 50% compared to last year.
Declining mortgage demand may predict a decline in home sales, as most buyers rely on financing to ensure large purchases. Affordable issues can cause a decline. As of Thursday, the average interest rate on 30-year fixed-rate mortgages exceeded 4% for the first time since May 2019, according to Freddie Mac FMCC. + 3.11%.
According to Shepherdson’s calculations, rising mortgage rates since September have increased monthly mortgage payments for median homes by more than $ 400 (27%).
“This is a huge increase, even for households sitting in the savings accumulated during the pandemic. Temporary savings increases can fund increased mortgage payments over the next 30 years. It couldn’t and would push demand even further. “He wrote.
Indeed, affordability is a top priority for today’s homebuyers. According to a recent survey conducted by the US News & World Report, nearly half of buyers say affordability is their number one concern, but the majority of those surveyed are optimistic that they will be able to buy a home again next year. It states that.
“A temporary increase in savings cannot fund an increase in mortgage payments over the next 30 years.”
— Ian Shepherdson, Chief Economist and Founder of Pantheon Macro Economics
Shepherdson said the spillover effect of changes in existing home sales would be widespread, arguing that the pace of rent growth would eventually slow down and perhaps reverse. It also spreads to new home sales, which he expects to fall as well. Declining new home sales mean lower GDP. This is because it means less demand for services related to home construction and less spending on items such as building materials and appliances.
The bad news for Americans who continue to buy homes under these conditions is that it is unclear how this situation will ultimately affect the availability of homes for sale. One of the reasons for the soaring house prices is the significant shortage of inventories in the housing market. This has intensified competition for the number of homes for sale.
The decline in demand seems to lead to an increase in the inventory of sellers. However, Shepherdson warned that many sellers could pull the list or refuse to put the house on the market. […] I want to be the last person trying to sell to a depressed market. “