After nearly two years of skyrocketing prices and dwindling inventories, the housing market is starting to cool this spring. As per Zillow, inventories are rising fast enough to close the gap with available houses in 2021 and should surpass last year’s stock by 2022. Homebuyers and renters who have been unable to locate an affordable place to live will have more options and, perhaps, fewer bidding wars. This will take time to come to fruition, but the signs of improving inventory are there.
According to Tucker of Zillow, the cooling is not a hint of a housing crisis but rather a sign that the market will revert to a more balanced state. While prices aren’t likely to start falling quickly, they will no longer be growing as swiftly.
Lawrence Yun, a chief economist for the National Association of Realtors, said that new home construction had increased the housing supply. However, he believes that continuous inflation and external concerns such as the Ukraine conflict will continue to pressure potential purchasers.
Homebuilder Sentiment Falls To 2-year Low On Declining Demand And Rising Costs
Builder confidence in the single-family home market declined dramatically in May as mortgage rates rose and construction material costs remained unchanged. According to the National Association of Home Builders/Wells Fargo Housing Market Index, sentiment dropped 8 points to 69 in May. Although readings above 50 are considered favorable, builder sentiment has fallen for the seventh month in a row.
It’s the lowest reading since June 2020, when builders experienced a temporary, adverse reaction to the start of the Covid epidemic before quickly rebounding. Demand for single-family houses in the suburbs with outdoor space soared when the economy collapsed. By November 2020, builder sentiment had reached a new high of 90. When the pandemic effect is removed, the number for this month is the lowest since September 2019, when the US-China trade war was wreaking havoc on building material supply chains.
Of the index’s three components, current sales conditions fell 8 points to 78, and sales expectations in the next six months dropped 10 points to 63. Buyer traffic fell 9 points to 52. According to Mortgage News Daily, the average rate on a 30-year fixed mortgage increased from 4.88 percent to 5.41 percent in April before peaking at 5.64 percent in the first week of May. This year, the rate was only 3.29 percent. Builders, on the other hand, were hammered heavily by inflation.
Builder sentiment in the Northeast remained constant at 72 on a three-month moving average. It dropped 7 points to 62 in the Midwest and 2 points to 80 in the South. Sentiment in the West declined 6 points to 83.
Mortgage Demand From Homebuyers Tumbles 12%, As Higher Interest Rates Take Their Toll
According to the Mortgage Bankers Association’s seasonally adjusted index, refinance and purchase loan demand fell this week, bringing overall mortgage application volume down 11%. Mortgage applications for home purchases fell 12% week over week, and since the third week of April, there has been a weekly reduction in homebuyer demand.
Applications to refinance a home loan continued to plummet, dropping another 10% week over week. Demand for refinances was down 76% from a year ago. During the Covid epidemic, two years of record-low borrowing rates sparked a refinance boom that has since burst. Only a tiny fraction of borrowers can now take advantage of a refinance.
Next week’s potential market-moving reports are:
- Monday, May 23rd – No Report
- Tuesday, May 24th – New Home Sales
- Wednesday, May 25th – FOMC Minutes
- Thursday, May 26th – Initial Jobless Claims, Continuing Jobless Claims, Pending Home Sales
- Friday, May 27th – Core PCE Inflation, Real Consumer Spending, 5-year Inflation Expectations
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