The US housing market is slowing rapidly, raising fears of a housing collapse and a crippling recession as nearly half of home sales prices have been cut in some areas.
After two years of buyers struggling to pay tens of thousands — or sometimes hundreds of thousands — over the asking price to insure homes as millions fled cities in favor of the suburbs during the pandemic, the boom appears to be over.
According to experts, an increase in mortgage rates, rising home prices, and uncertainty about Joe Biden’s economy with rising inflation are contributing factors to the slowdown.
Former hedge fund manager Michael Perry, of The Big Short fame, said in a now-deleted tweet on May 24 that falling inventories and sluggish home sales remind him of 2008, by balancing market trends.
“Like I said in 2008, it’s like watching a plane crash,” Perry tweeted.
City residents across the country have witnessed homeowners slash prices in a desperate bid to sell
In a statement, Redfin’s chief economist, Daryl Fairweather, said: “The picture of a weak housing market is becoming clearer, especially for home sellers who are increasingly turning to lower prices as buyers become more cost conscious in light of rising mortgages. rates.’
This followed a report from the company that said the amount of home sellers who cut their prices reached its highest level since October 2019.
The report says that one in five homes on the market across the country are seeing their owner drop in price.
Boise, Idaho, which has seen an influx of out-of-state immigrants during the COVID-19 pandemic, has been hardest hit with 40% of homes on the market seeing a price drop in April 2022.
Cape Coral, Florida, has been one of the most popular destinations for those who have left major US cities during the COVID-19 pandemic.
More than 40% of homes on the market in Boise, Idaho saw their price cut by owners in April 2022
Cities like Cape Coral, Florida, New Orleans, Baton Rouge, have seen more than 30% of homes in their own market see their prices fall.
A previous Redfin study found that Cape Coral was one of the most popular destinations for those who moved during the pandemic.
The city’s population increased by nearly 10% in 2021 and 2022 with the majority of immigrants arriving from Chicago.
According to the study, it is San Francisco that has lost the largest population of any city during the pandemic. The majority of those who left the city remained in California, settling in the Sacramento area.
While Los Angeles lost more than 50,000 residents, with the majority moving to San Diego.
New York City lost 80,000 residents with the most settled being Miami.
Redfin also says other factors go into determining how hot the housing market gets, including how long a home spends on the market.
The company also said home tour orders are down 8% this month compared to May 2021.
Speaking to CBS News, the real estate broker’s chief economist, Danielle Hill, said the 30-year fixed-rate home loan rate had hit a 13-year high of 5.3%.
“At the end of the day, some buyers are taking a step back and re-evaluating their options because the costs are too high,” Hill said.
According to Redfin, requests for home tours have dropped dramatically across the country
“The housing market is adapting and adapting very much,” she added.
In 2020, mortgage rates are down to 3.4%.
Amid the current increase, that number is still lower than the launch except for one month between the 1990s and the Great Recession of 2008.
Economist Bill McBride told The Atlantic that the situation in the market today is very similar to the housing market crash of the 1980s.
That’s why, McBride said, as the Federal Reserve raised interest rates to combat inflation in 1979.
This brought inflation to 20%.
This brought the housing market to a halt until 1982. In 1981, unemployment in the United States rose to 11%.
Redfin CEO Daryl Fairweather said home sellers are increasingly dropping prices as the market turns cold
Despite sellers cutting prices across the country, the median US home price in April was $425,000, up more than 30% from 2020, according to Realtor.com.
Florida experienced the largest home price increases in 2022, particularly in cities like Tampa, Orlando, and Miami.
In February 2022, Realtor.com said that these three cities saw the fastest rising rents in the country.
Moody’s Analytics chief economist Mark Zandi told Fortune Magazine that the public shouldn’t be afraid of a 2008-style housing bubble.
Zandi said a number of factors play a role in making this drop in sales different from what it was 14 years ago. These include the lack of sub-prime loans in the market and the absence of a credit crunch.
However, Zandi warned that in the event of a recession, regional home prices could fall by as much as 20%.
Erin Sykes, an economist with Nest Seekers International, told CBS News that she felt as though home prices could drop as much as 40% during the summer of 2022.
A Moody’s study found that in 392 of the largest housing markets in the United States, more than 95% of home prices are overestimated against domestic incomes.
The study highlighted Boise, Idaho, where home prices are rising 73% higher than Moody’s says they should be.
The price hike comes as demand continues to outpace supply as construction has been halted due to the Covid-19 pandemic.
The National Association of Realtors said home sales fell again in April 2022 for the third month in a row.
Mortgage applications have fallen 12% in the past two weeks.
The National Association of Realtors said pending home sales were down about 10% in April 2022 compared to a reasonable time last year.
According to census information, home sales were below 20% in April and May, the lowest level since April 2020.
‘We used to get 10 to 15 offers on most homes,’ Los Angeles real estate agent Lindsey Katz told CNBC. Now I see between two and six offers on a house, a good house.