Industry leaders speak out on what’s next
For the third month in a row, pending home sales in the United States have fallen, the National Association of Realtors (NAR) recently reported. At the end of August, three of the four major regions recorded month-over-month declines in real estate transactions, with only the West registering a slight gain. Year-over-year, all four regions posted double-digit declines.
“The direction of mortgage rates – up or down – is the main driver of home buying, and the high rates for a decade have deeply reduced contract signings,” the economist said. NAR chief Lawrence Yun in a statement. “If mortgage rates moderate and the economy continues to create jobs, home buying should stabilize as well.”
The NAR expects existing home sales to fall 15.2% in 2022, to 5.19 million units, while new home sales are expected to fall 20.9%. In 2023, Yun forecasts slower price appreciation and corresponding increases in sales as the year progresses. “Next year, the annual median house price is only expected to increase by 1.2 percent,” Yun added. “Home sales will pick up in the second half of 2023, but will be down 7.1% overall.”
Dottie Herman, vice president of Douglas Elliman, one of the largest real estate companies in the United States, is still hesitant to call the current situation a recession.
“Obviously everyone is seeing a market cooling compared to 2021, but that’s a bad comparison,” she told The Epoch Times. “Frankly, everything is going to look horrible after last year, because it was not a normal year. You really have to look at the pre-pandemic numbers.
Herman explained that August is traditionally a “dead month” for real estate, due to the summer holidays. Typically, the fall market begins to pick up around late September and early October.
With current rates hovering around 6%, many experts like Herman believe the seller’s market will continue for the foreseeable future. She remains cautious about the use of the word “recession”.
“The difference between today and 2008 is that today we still have very little inventory,” she added. “People who bought homes in the last two years are not going to move out now and pay higher interest rates.”
While acknowledging that rising interest rates are slowing home sales, Herman noted that they are still well below the national historical average of 7.5%. “It’s really not a fair comparison because if you go back to the start of the pandemic, you saw interest rates as low as 2.5%, which we’ve never seen before,” he said. she declared. “I remember paying 15% interest on my first house and taking an ARM (adjustable rate mortgage) on it.”
Ernest Jones, president of the National Association of Mortgage Bankers and mortgage broker for Minneapolis-based Lend Smart Mortgage, believes ARMs could be attractive to some buyers. “With MRAs, there’s always a degree of unknown and most people who opt for them like to be out of it within a certain amount of time,” he told The Epoch Times. “At the moment it could be difficult because we may not know what the market is going to do.”
Current interest rates are at or around 6.5%, but Jones explained that they could rise depending on a potential buyer’s credit score and debt-to-income ratio. In most cases, he says, lenders are looking for a credit score of at least 700, as well as a large down payment, usually around 20%.
“I also think there are a number of factors affecting the thought process of consumers today when considering a home purchase,” Jones said. “It’s probably the biggest decision of their life and a lot of people may be delaying that leap right now until they have a better idea of what’s going to happen in the market.”
According to NAR, home sales in the Northeast fell 19%, while sales in the Midwest fell 21% from August 2021. In the South region, home sales fell 24 .2% from a year ago and the West recorded the largest year over year on-year decline of 31 percent.
“Home prices are the least affordable in the West and as a result the area has seen larger annual declines in contract signings due to rising interest rates compared to other areas. of the country,” Yun added.
While many economists predict a recession for 2023, Herman admits no one can make completely accurate predictions at this point. “I don’t see prices dropping significantly, and I think builders are holding back right now as well,” she said. “I think there will be more room for negotiation, especially heading into the winter months when things traditionally slow down.”
In the meantime, she said, the rental market is “staggered” in many parts of the country, especially as potential first-time home buyers are either out of the market or with too little investment. inventory to choose from.
Yun predicts that the economy will continue to be sluggish until the end of 2022, with interest rates likely to reach 7% in the coming months. “It’s only when inflation subsides that we’ll see mortgage rates start to stabilize,” he said.