The housing slowdown that has been anticipated for months is just about here. Home sales are down, and some of the nation’s hottest towns that thrived during Covid are beginning to see price drops. This real estate downturn might sound awful, however with home prices as high as they are, this market was long overdue for a cooling off. Fed chairman Jerome Powell during the Fed meeting last Wednesday that “activity in the housing sector has weakened.” He announced another .75% (75 bps) spike in interest rates.
Contract signings fell 8.6% in June from one month ago, reported from the National Association of Realtors. Economists last year were predicting a 20% drop, so this is much less than what was predicted. Mortgage applications are at their lowest level since February.
Prices are continuing to drop and real estate analysts expect that to continue, especially as rates increase. We are seeing new construction prices drop as well, with 20% of builders lowering their prices this month. “Some of the metro areas that attracted out-of-state buyers early in the housing boom are cooling off the fastest,” writes Nicole Friedman from the WSJ. Ian Shepherdson, chief economist at Pantheon, added some notes as well. “Activity is now in free-fall, inventory is rocketing, and prices have started to fall.”
This is how the real world is reacting to the Fed’s updates. Once rates jumped, all of a sudden homes were less affordable. Although there are many people who want to buy, they just cannot! “The challenge with the housing market is that many Americans so desperately still want to own a home,” says Ali Wolf, chief economist at Zonda. “But rising home prices and higher rates have pushed them to the limit.”