HESITATION TO BUY A HOME FUELING A GRADUAL ‘RESET” IN THE MARKET
There was a time when buying a home was first and foremost for the purpose of shelter. The word “investment” was not common among those who wrote a check, stuffed it into an envelope, placed a stamp on it, and dropped it in the mailbox. There was never a “right” and a “wrong” time to buy, and interest rates were not daily news.
MarketWatch’s Jacob Passy reports that a new poll from Gallup found that only 30% of Americans believe now is a good time to buy a house — the lowest level on record since Gallup began surveying Americans on this question beginning in 1978. This is paired with another first — it’s the first time less than 50% of people across the country thought it was a good time to buy. “Even at the height of the foreclosure crisis amid the Great Recession at least 50% of Americans thought the time was right to purchase a home,” says Passy. “But today, with home prices and mortgage rates rising, people are growing concerned about taking the plunge.”
Americans’ won’t believe there can be a “reset” happening until they see it, however. Their expectation is that home prices will continue to rise. We’ve been here before, but lots of millennials weren’t around for it. “Gallup reported that 70% of respondents said they expect the average price of homes in their area to increase over the next year, versus 18% who expect them to stay the same and 12% who believe they will drop,” says Passy. The hesitation to buy can lead to a slowdown in home sales, leading to lowered values, but may also result in a more balanced market — where those who hesitated to list their homes can not only do so with the confidence that there are still buyers out there for them, but also knowing that they, too, might be able to afford their next home as well.
Most Americans believe in the intrinsic value of home ownership, however, believing that while it’s a harder goal to achieve, it’s still the best long-term investment. “Nearly half of the people Gallup polled (45%) said that real estate was the best long-term investment, while 24% said stocks and 15% said gold,” says Passy.
Redfin’s Tim Ellis is watching all this happen, and reports that the share of home sellers who dropped their asking price shot up to a six-month-high of 15% for the four weeks ending May 1, up from 9% a year earlier. “The 5.9% increase is the largest annual gain on record in Redfin’s weekly housing data back through 2015. “Although a growing share of sellers are responding to the palpable drop in homebuyer demand by lowering their prices, sellers remain far outnumbered by buyers, so the typical home flies off the market at the fastest pace on record and for more than its asking price,” says Ellis.
Redfin’s Chief Economist Daryl Fairweather says, “Unfortunately for buyers hoping to find a deal as competition cools, sellers are pulling back even faster, which is keeping the market deep in seller’s territory. So even though price drops are becoming more common, most homes are still selling above asking price and in record time.” She backs this up by citing a few stats, including how in April fewer people searched “homes for sale” on Google — down 7% from a year earlier. And how the seasonally-adjusted Redfin Homebuyer Demand Index—a measure of requests for home tours and other home-buying services from Redfin agents—was down 1% year over year during the week ending May 1, dropping 10% in the past four weeks, compared with a 1% decrease during the same period a year earlier. Touring activity is down, mortgage purchase applications are down, and pending home sales were down 4% year over year, the largest decrease since mid-February.
On average, 3.7% of homes for sale each week had a price drop. Overall, 14.9% dropped their price in the past four weeks, up from 11.2% a month earlier and 9.1% a year ago. This was the highest share since mid-November. And the average sale-to-list price ratio, which measures how close homes are selling to their asking prices, rose to an all-time high of 102.8%. In other words, the average home sold for 2.8% above its asking price. This was up from 101% a year earlier.
So whatever homebuyers decide to do, it appears there are few “right” and “wrong” times to buy. As mortgage rates begin to shake out inflation, home prices may start to become more balanced, along with the prices of everything else. It’s a calculation and a risk, just as with any other investment. But just as homeowners refinanced their homes during the pandemic, resulting in an unprecedented amount of home renovations and the desire to stay put for a while, the more things change, the more they stay the same. Living in your investment – wherever its value goes – means shelter, stability, and suits Americans’ desire to own a piece of the world.
MarketWatch, Redfin, TBWS