top of page
Search
snitzoid

The real estate bubble isn't expanding. Eckkkkk!

As I've said in the past, I think we are living in a housing bubble created by years of artificially low-interest rates.


About one in 5 US homes are owned by investors who rent these properties out. These are mostly financed with short-term mortgages coming due in the next 2-4 years. When the mortgages mature (and need to be refinanced at higher rates), the rents won't cover the interest payments and the owners will be forced to sell. That could easily cause the bubble to deflate or worse pop.


More cowbell:


Housing Market Slumps as Mortgage Rates Top 7%

Existing home sales in March fell 4.3% from February

By Nicole Friedman and Gina Heeb

Updated April 18, 2024


Mortgage rates have surged past 7% and home sales in March posted their biggest monthly drop in more than a year, renewing pressure on the U.S. housing market as uncertainty over real-estate commissions buffets the industry.


The average rate on the standard 30-year fixed mortgage jumped by nearly a quarter percentage point to 7.1%, according to a survey of lenders released Thursday by mortgage-finance giant Freddie Mac. That is the highest level since late 2023 and the largest weekly increase in nearly a year.


Existing home sales in March, meanwhile, fell 4.3% from February in what was the largest percentage decline on a monthly basis since November 2022, the National Association of Realtors said Thursday.



The housing market’s recent turbulence is cutting short a positive start to the year. Sales tumbled to their lowest level in nearly 30 years in 2023. But they rose during the first two months of this year as a number of buyers took advantage of a decline in mortgage rates to resume their home search. Active listings ticked higher and real-estate showings picked up in January.


Mortgage rates started to rise again in February, weighing on March sales. The recent spike in borrowing costs could drag affordability back to the historic lows it reached last year. Home prices are near record highs. Other costs to own a home, such as insurance premiums, property taxes and maintenance, have skyrocketed, too.


Home buyers are also confused about coming changes to the rules governing how real-estate agents get paid, and whether those changes could increase or decrease their overall costs. NAR reached a historic settlement of claims last month that the industry conspired to keep agent commissions high. The new rules are expected to make it easier for home buyers to negotiate fees with their own agents.


That could prompt some home shoppers and sellers to pause until there is more clarity when the new rules go into effect in July.


The combination of higher rates and uncertainty about the new commission structure now threaten to halt momentum during the crucial spring home-buying season, which is typically the housing market’s busiest time of year.


“There’s so many mixed signals now in the market that for many people, it’s just too much,” said Selma Hepp, chief economist at CoreLogic. “I think they’re just sitting it out.”

While many economists expect rates to decline later this year, stronger-than-expected inflation data last week could prompt Federal Reserve officials to hold rates at their current level for longer. That’s pushed up the yield on 10-year Treasurys, which mortgage rates tend to track.

A persistently low supply of homes for sale is also pushing prices higher. The national median existing-home price rose 4.8% in March from a year earlier to $393,500, NAR said.




“Home sales are essentially stuck,” said Lawrence Yun, NAR’s chief economist. “We need more inventory, definitely.”


On an annual basis, existing home sales, which make up most of the housing market, fell 3.7% in March.


Economists surveyed by The Wall Street Journal estimated sales of previously owned homes fell a seasonally adjusted 4.8% in March from February.


Homes typically go under contract a month or two before the contracts close, so the March data largely reflect purchase decisions made in February and January.

For some who bought in March, they found less competition. David Bramlett and Alexandra Hodson started house hunting last fall but decided to wait. When they re-entered the market this year, interest rates had declined, Bramlett said.


The couple bought a four-bedroom home with a yard in Cumming, Ga., in March for $480,000.


“There was no bidding war,” Bramlett said. “It was good to get in when we did, where we did, with a motivated seller.”


But affordability has worsened in recent weeks. The median monthly payment for a home purchase rose to $2,775 in the four weeks ended April 14, up 10.6% from a year earlier, according to real-estate brokerage Redfin.


“March and April slowed down tremendously,” said Clint Jordan, a real-estate agent in Colorado Springs, Colo. “Rates are a little bit higher, so a lot of our buyers are sitting back.”


The costs of buying a home are also outpacing the increases in rent, making it relatively cheaper to rent.


The average monthly new mortgage payment was 38% higher in the U.S. than the average apartment rent at the end of 2023, according to an analysis by CBRE. That premium has been in the double digits for two years.


“It’s never been this high for this long,” said Matt Vance, senior director and Americas Head of Multifamily Research at CBRE. “It doesn’t seem likely that it will come down any significant amount in the next several years.”


The supply of homes for sale rose in March but was still 37.9% below typical prepandemic levels, according to Realtor.com.


News Corp, owner of the Journal, also operates Realtor.com under license from NAR.

Write to Nicole Friedman at nicole.friedman@wsj.com and Gina Heeb at gina.heeb@wsj.com

7 views0 comments

Recent Posts

See All

Comments


Post: Blog2_Post
bottom of page