A Modest Deceleration
As rates have edged higher and higher this year, the housing market has been slowing down from its insane pace, and now homes are taking a little longer to sell.
The Expected Market Time has grown from 37 days in April to 49 days today, a noticeable shift in the speed of the market due to rates rising above 7%.
It seems as if prices keep going up. Gas is once again above $5 per gallon. Date night at a favorite restaurant is now north of $100. A quick grocery stop for a few items totals more than $50. Wallets have been stretched. As a result, many are changing their spending habits and cutting back on extra errands or nights out.
Similarly, home affordability has been squeezed since the 30-year fixed rate climbed from 3.25% in January 2022 to over 7% in October and November 2022. This year started with mortgage rates easing to 5.99% in February. Yet, after reaching 6.39% in mid-April, they have been on the rise, climbing to 7.49% on August 21st, the highest mortgage rate according to Mortgage News Daily since December 2000, nearly 23 years ago. Buyers’ wallets are stretched, and fewer and fewer can afford homes with these sky-high rates.
The Expected Market Time (the number of days to sell all Orange County listings at the current buying pace) reached its hottest reading of 2023 in April, just 37 days when rates had dropped to 6.16%. Slowly but surely, mortgage rates inched higher, eclipsing 7% in May. Demand remained flat, and the inventory increased little by little. The Expected Market Time rose slightly to 39 days, which is still remarkably hot. In June, rates hovered just below 7%, and demand did not change much, but the inventory continued its methodical, slow rise. The Expected Market Time climbed to 43 days. It was more of the same in July, and the market time climbed to 45 days. Last month, in August, as rates continued to spike, nearly reaching 7.5%, demand cooled further, and even though the inventory started to fall, the market time reached 49 days.
The market had gone from 37 days in April to 49 days in August, adding nearly two weeks to the market time. A market time of 49 days is still exceptionally fast and indicative of a “hot market” that favors sellers; yet, it also highlights the importance of careful pricing and having an approach to the market that is sympathetic to buyers pulling the trigger despite the high mortgage rate environment where affordability has been severely impacted. Price a home too high, and a seller will sit with no offers or low-ball offers to purchase. Homes that need a lot of work, deferred maintenance, lack upgrades, or have an unfavorable location will ultimately obtain less activity. They must adjust their price and expectations accordingly to secure a successful outcome.
Excerpt taken from an article by Steven Thomas.