Real estate report: Slumping demand offset by dearth of listings
by Steven Felschundneff | firstname.lastname@example.org
As the final two months of the year unfold, it’s likely that 2023 will be the slowest real estate market since the housing bubble burst in 2008.
Stubbornly high prices combined with the highest mortgage interest rates in a generation have made it increasingly difficult to buy a home, which has placed downward pressure on demand. At the same time inventory has remained historically low, which has resulted in well priced homes moving rather quickly.
“It’s a draw. No one has any particular leverage over the other,” said Paul Steffen broker/owner of Wheeler Steffen Sotheby’s International Realty when asked whether it’s a buyer’s or seller’s market.
Conventional wisdom dictates that as demand sinks, prices should be in decline, but that simply isn’t happening. Steffen said prices in Claremont have shown little growth over the past year and may have even slumped a little, but have not seen the dramatic settling one would expect when the cost to borrow money increases so rapidly. The offsetting factor seems to be the scarcity of homes for sale.
“My inventory of active listings is in the single digits, and traditionally we have 15 to 20 active listings in a normal market, but it’s hard to remember what a normal market is anymore,” Steffen said. “Because we have gone from hyperactive [market] with lots of transactions to a very restrictive market in just a couple of years.”
This odd market contradiction is not exclusive to Claremont.
“Persistent mortgage rate increases have put the U.S. housing market in a quagmire, driving home sales activity to the lowest level in 15 years,” according to CoreLogic Chief Economist Selma Hepp. “As of September, year-to-date home sales are trending 22% below last year’s levels and 23% below 2019. Nevertheless, sales volume may further deteriorate in the coming months as mortgage rates continue to rise.”
According to data from Freddie Mac, interest on the average 30-year fixed rate mortgage nationwide hit 7.79% in October, its highest level in 23 years. For the first week of November, interest rates have pulled back slightly to 7.67%, but that figure is still almost three times the market’s all-time low of 2.66% in December 2020.
For the record, mortgage interest rates peaked in May 2000 at 8.64% right after the dot-com bubble burst, which still pales in comparison with October 1981 when rates hit an eye-popping 18.63%.
Higher interest rates cut into home shoppers’ buying power, which should result in lower prices. However, the real estate firm Redfin reports sales prices are actually up 3% from last October. The company did caution that price increases are a lagging indicator, reflecting homes that went into escrow in in the past 60 days, and data from October could dampen that outlook significantly.
“Another reason for rising sale prices is that despite slow demand, low inventory is propping up prices. The total number of homes for sale is down 10% year over year,” according to Redfin’s Dana Anderson.
Anderson reports that nearly 7% of home sellers reduced their asking price during the four weeks ending October 29, the highest number on record.
Given all of the challenges would-be buyers face, it may be no surprise that seasonally adjusted mortgage purchase applications hit a 30-year low last month, according to the Mortgage Bankers Association.
Steffen said mortgage interest rates around 7% are actually about average when looking at the data over the past few decades. Buyers simply got accustomed to the historically low rates of the post Great Recession era. Nonetheless, he predicts a resurgence in demand, and home prices, if rates slip in the coming year.
“It’s a wonderful market for people with all cash because they don’t have to worry about the interest rate, and so they are able to negotiate. That actually has always been true, but it’s particularly pronounced in this type of market,” Steffen said.
There were 15 existing single family home sales in Claremont in September, the latest month for which data is available. That is 54.5% fewer than sold last September, but the median price was still quite high at $1.05 million. The least expensive single family residence sold for $690,000 and the priciest closed at $2.7 million. September’s median was higher than average for the past few months when the median price was just under $1 million.
The median sold price for a Claremont condominium in September was just $417,364, but that number is an outlier. During the previous three months the median price was about $600,000.
There were 19 active listings on average during September, a drop of 42% from a year ago. Homes stayed on the market for just 17 days but an astonishing 26.3% had reduced asking prices.
The super heated local rental market has also cooled and has actually stabilized, according to Steffen. In his property management business, rentals stayed on the market for about 45 days and property managers have to do more work to match tenants with homes. The median lease price in October was $3,500 per month, down from nearly $4,000 in June.
“There are still people who need to rent homes, and the amount of money people are charging for rent has stabilized but it’s still at historic highs. It hasn’t slid back at all in this market, and a lot of that has to do with people who would like to buy but can’t seem to find anything to buy. So they are kind of stuck,” Steffen said.