A downturn in the residential real estate market could be nearing, Kieran Clancy, a senior US economist at Pantheon Macroeconomics, recently warned. The potential for a major price decline has been on our radar in recent quarters as elevated mortgage rates and record-high prices create an unfavorable environment for buyers.
The only reason housing prices have yet to plummet is because of the lack of housing inventory. That’s the primary difference between the current market and the market during the 2008 housing crash.
For now, we keep our eyes peeled for the changing dynamics in supply/demand. A new Redfin report might be the first sign inventory is increasing.
For the four weeks ending Dec. 25, the total number of homes for sale jumped 18% compared to the same period a year ago. Redfin said this was a record year-over-year increase, adding homes are lingering on the market longer.
“Inventory is up even though new listings are down by double digits because homes are taking a long time to sell amid 6%-plus mortgage rates (the average 30-year rate ticked up to 6.42% this week), economic uncertainty and the typically slow holiday season,” the report said.
The residential real estate market is freezing as homes on the market now take 40 days to go under contract, more than double from a record low of 18 days in May and the slowest pace since January 2021.
A jump in supply is not a promising sign for the market heading into 2023. Goldman Sachs analysts slashed their outlook for home prices from around flat next year to down 4%, noting “unsustainable levels of housing affordability to continue weighing on housing demand.”
The median home sale price was $351,860, up a measly 0.7% year-over-year, the slowest growth rate since the beginning of the virus pandemic.
During the four weeks leading up to Dec. 25, prices fell 9% year-over-year in San Francisco, 6.5% in San Jose, 6% in Los Angeles, 4.5% in Detroit, 4.4% in Pittsburgh, 3.7% in Sacramento, 3.6% in Oakland, CA and 2.3% in Austin. They slipped 2% or less in New York, Seattle, Anaheim, CA, Phoenix, Chicago, Newark, NJ, Riverside, CA, Boston, and Washington, DC.
And for more insight into what’s next. Industry insider and CEO of US home-furnishings company RH, Gary Friedman, warned in a recent earnings call “there will be no soft landing” in the residential real estate market.
The bottom line is that momentum in the housing markets has stalled, inventory is now building, and perhaps it’s just a matter of time before prices decline.