The popular spring home buying season is only accelerating. But an analyst warns it could be a meltdown.
Ian Shepherdson, chief economist and founder of research consultancy Pantheon Macroeconomics, predicts a dramatic drop in the pace of home sales this year. In a research note, he forecast existing home sales would fall about 25% from the annual pace of 6.02 million set in February to a rate of 4.5 million by the end of the month. summer.
“The housing market is in the early stages of a substantial decline in activity, which will trigger a sharp decline in the rate of house price increases, possibly beginning as early as spring,” Shepherdson wrote in a note. of research distributed on Sunday.
As evidence of this expected slowdown in home sales, Shepherdson pointed to demand for mortgages. The most recent mortgage application data from the Mortgage Bankers Association shows that the number of applications for loans used to buy homes is down more than 8% from a year ago. Comparatively, demand for refinancing has fallen nearly 50% from a year ago.
A drop in demand for mortgages could predict a drop in home sales, since most buyers rely on financing to secure a major purchase. Affordability issues are likely to blame for the decline. On Thursday, the average interest rate on the 30-year fixed-rate mortgage rose above 4% for the first time since May 2019, according to Freddie Mac FMCC,
According to Shepherdson’s calculations, rising mortgage rates since September have increased the cost of a monthly mortgage payment for a median-priced home by more than $400, or 27%.
“That’s a huge increase, even for households sitting on savings built up during the pandemic – a one-time increase in savings cannot fund an increase in mortgage payments for the next 30 years – and it will drive down the asks,” he wrote.
Indeed, affordability is a priority for today’s homebuyers. A recent survey by US News & World Report found that nearly half of shoppers say affordability is their biggest concern, although a majority of respondents said they were still optimistic about the possibility. to buy a house next year.
““A one-time increase in savings cannot fund an increase in mortgage payments for the next 30 years.””
The ripple effects of a change in existing home sales would be significant, Shepherdson said, saying the pace of rent increases would eventually slow and possibly even reverse. It would also spread to new home sales, which he predicts will also fall. A decline in new home sales would represent a downward drag on GDP, as it would imply less demand for services related to home construction and less spending on items like building materials and household appliances.
The bad news for any Americans who persist in trying to buy a home under these conditions is that it is less clear how this situation will ultimately impact the availability of homes for sale. Part of the reason home prices have surged is that there is a significant lack of inventory in the housing market, which has fueled competition for the few homes that come up for sale.
A drop in demand would apparently lead to an increase in the stock of homes for sale. But Shepherdson warned that many sellers may pull listings or refuse to put their homes on the markets because “no one […] wants to be the last person to try to sell in a falling market.