New Home Sales Surprisingly Rise But the Housing Market Remains ‘Tense’ – Here’s When Experts Predict Prices Will Fall

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New home sales unexpectedly broke a four-month streak of losses and rose more than economists expected in May, according to data released Friday, but experts suggest the delay may not last long, pointing to higher mortgage interest rates likely. To continue to hold back demand. This will likely result in a record price drop once this year is over.

key facts

About 696,000 new single-family homes were sold last month on a seasonally adjusted annual basis, 10.7% above the April rate of 629,000 (adjusted up from 591,000) and well above analysts’ average forecast of 587,000, it said. Statistics Department on Friday. .

“Don’t be fooled,” said Pantheon Macro chief economist Ian Shepherdson, in comments emailed after the report, saying the rebound does not alter market expectations in light of the “amazing crash” in mortgage applications this year with the rapid rise in mortgage rates — Now at the highest level since the Great Recession – stop order.

The housing market is “rolling fast, and sales are going to drop further,” Shepherdson said, adding that he sees “little chance of a clear bottom” until late summer or early fall — after sales have fallen “significantly” due to the slowdown. The effect of mortgage applications on sales.

In a good sign for potential buyers, lower demand helped inventory levels — which had long been capped during the pandemic — notes Shepherdson, forecasting lower prices during the second half of the year as home builders seek to reduce inventory; The pace has already slowed, with prices rising just 0.8% over the past six months, compared to 2.5% last summer.

In a note to clients Thursday night, Goldman Sachs chief economist Jan Hatzius said current housing market trends, including weak price growth and higher vacancy rates, suggest prices will fall about 3% for every one-percentage point increase in foreclosure rates. real estate, which has already risen by about 3 percentage points over the past year.

Goldman Sachs predicts that home prices, which hit a record $507,800 last quarter, will peak in the last quarter of this year and then decline until mid-2024.

critical quote

“The May bounce doesn’t change the big picture at all: The purchasing power of potential homebuyers has dropped dramatically because of the surge in mortgage rates, so demand is down,” Shepherdson says. The market is in a crater state and prices are under pressure.

main background

Home prices have soared during the pandemic as interest rates collapse and the influx of Americans working from home has increased demand. However, this year the Federal Reserve began raising interest rates to cool decades of high inflation — driving up the price of home purchases by hundreds of dollars each month, denting demand as a result. In a sign of potential weakness coming, the number of housing starts, or new homes in which construction has begun, fell 14.4% to about 1.5 million last month from 1.8 million in April — sharply below economic expectations that require nearly a 1.7 million start. , the Census Bureau reported last week.

the shadow

With affordability challenges limiting demand, sellers have been cutting asking prices at the highest rate since at least 2015, according to real estate brokerage Redfin. Redfin reported Thursday that about 6% of listings saw a price drop in the four weeks to June 19. Prices haven’t come down by any significant amount yet, Daryl Fairweather, chief economist at Redfin, said in a statement, noting that about 55% of homes sold are above list price. “But if the housing market continues to cool, prices may fall in 2023.” Add.

What to watch

The Fed is expected to raise the next interest rates at the conclusion of its next policy meeting on July 27. Goldman economists said they now expect the Federal Reserve to raise interest rates by 75 basis points again next month – adding to the most aggressive increases in two decades. .

in-depth reading

Existing home prices hit a record $402,000 – but sales are falling as housing market adjusts ‘painfully’ to higher prices (Forbes)

The housing market is ‘in free fall’ as new construction prices fall – here’s when ‘reset’ can drive prices down (Forbes)

Mortgage loans exceed 6% and reach their highest level since 2008: the housing market could ‘torpedo’ the US economy, experts warn (Forbes)

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