Jun 12, 2023
The U.S. has been facing a tight housing crunch, especially with would-be sellers standing by on the sidelines, reluctant to wade into a messy market with high mortgage rates.
“Not only do we not have enough new construction because of political gridlock and financing challenges, but we also don’t have anyone putting their home on the market just because they have a 30-year fixed rate below 3%,” Redfin CEO Glenn Kelman recently told CNBC.
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“So, nobody wants to sell at home right now and there are still plenty of people who want to move.”
Here’s what’s been happening, and why it’s the “weirdest housing market correction” Kelman says he’s ever seen.
The housing inventory shortage
Homes were flying off the market in 2020, when mortgage rates dipped below 3%, but rates are now roughly double that figure.
Kelman believes homeowners are going to hold out on selling until mortgage rates come down, but so far they’ve been oscillating between the 6% to 7% range this year.
While 7% rates aren’t the worst in U.S. history — they hovered over 18% back in 1981 — it’s been an incredibly sharp increase from the lows of the COVID-19 pandemic.
“Most people couldn’t buy the house that they bought two or three years ago, so it’s unthinkable for them to move up,” Kelman said.
The monthly mortgage payment on the median-asking-price home soared to a record high of $2,651 at a 6.79% mortgage rate, the average for the week ending June 1. That’s up 14%, or $320, from last year, according to Redfin’s monthly report.
The report also reveals new sale listings plunged 25% since last year to their lowest level of any early June on record. On top of that, the total number of homes on the market has also dropped 5% year over year to its lowest level on record for early June.
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Kelman projects a sales volume of around 4.2 million units this year in comparison to the five million norm.
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The crunch is keeping prices high
Thanks to the inventory shortage, home prices remain elevated, keeping plenty of would-be buyers at bay.
The median U.S. home price is $379,463, down just 1.6% year over year — the smallest price dip in three months, according to Redfin. But in some parts of the country, like Cincinnati, Miami and Milwaukee, prices increased.
And younger generations who didn’t snag a property when rates were low are now facing significant hurdles in their path to homeownership.
“It’s going to be a real affordability crisis for the millennial generation,” Kelman noted.
But that’s not to say there isn’t any interest in buying a home. Redfin’s Homebuyer Demand Index — which measures the requests for tours and other services from Redfin agents — is near its highest level in a year.
It’s an indication that would-be buyers are waiting in the wings to make an offer when mortgage rates go down or prices drop, Redfin notes.
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Serah Louis is a reporter with Moneywise.com. She enjoys tackling topical personal finance issues for young people and women and covering the latest in financial news.
