Will Millennial Demand Buoy the Struggling Housing Market?
The US housing market, long challenged by a shortage of available properties, is finally witnessing a rise in listings. However, prospective buyers are notably absent in many areas. Homeowners are now confronting the reality that high interest rates are curbing demand during what is traditionally a prime season for the housing market. Consequently, more sellers are reducing their asking prices, with the frequency of price cuts reaching levels not seen since November 2022, as reported by Redfin Corp.
Ralph McLaughlin, senior economist at Realtor.com, emphasized the impact of mortgage rates rising above 7%, stating, “The willingness of homebuyers to take a stab this season is diminished. You can have high prices or high mortgage rates, but you can’t have both for long.”
Earlier this year, there was optimism for rate cuts by the Federal Reserve, which could have rejuvenated a housing market recovering from its worst year for sales of existing homes in nearly three decades. However, the persistent strength of the economy has dimmed hopes for any immediate rate reductions.
“Without the rate cuts, a cold reality is settling down on the housing market,” remarked Robert Frick, corporate economist for Navy Federal Credit Union.
High borrowing costs continue to burden buyers. The average rate on a 30-year mortgage has hovered near 7% since mid-April, and prices have climbed higher. For the four weeks ending May 26, the median sale price rose by 4.3% from the previous year to a record $390,613, according to Redfin.
This scenario has squeezed house hunters out of the market. Sales of new homes, which had been a positive aspect in an inventory-constrained market, fell in April. Contracts to purchase existing homes dropped to their lowest level in four years. This pullback has led to an accumulation of listings rather than sales, as noted by McLaughlin from Realtor.com. Lawrence Yun, chief economist for the National Association of Realtors, described the spring selling season as “definitely a disappointment.”
While sales are generally falling across the US, regional differences are significant. Sun Belt markets, such as Florida and Texas, which saw a surge of new arrivals during the pandemic, are now cooling off as people are priced out. Conversely, western metros like Seattle and the San Francisco Bay area, which experienced sharper downturns in late 2022, are beginning to recover.
Contract signings dropped by at least 14% in cities like Houston, West Palm Beach, and Atlanta but surged by roughly the same amount in San Jose, California, according to Redfin’s year-over-year data for the four weeks ending May 26. Redfin’s measure of pending sales fell by 3.4% nationwide.
Don Hackford, a real estate agent in Hendersonville, Tennessee, highlighted the drastic change in market conditions. Eighteen months ago, homes in the northern suburbs of Nashville sold almost immediately. Now, even with price cuts, homes linger on the market, and some developers are withdrawing listings after receiving low-ball offers. “Everything has kind of stagnated, and it’s frustrating for Realtors, because it’s like we’re being shut out,” Hackford lamented.
Along Florida’s southwestern coast, a region heavily impacted by soaring home insurance rates, the number of active single-family home listings in the Punta Gorda area has doubled to 2,143 over the past year. Meanwhile, the median sale price of a single-family home dropped by nearly $30,000 to $351,000 in April from the previous year, according to Leanne Walker, a local broker and president of Realtors of Punta Gorda-Port Charlotte-North Port-DeSoto Inc. “It has gotten very flat,” Walker said. “It has become very much a buyer’s market. Lots of price reductions happening.”
Redfin Economist Chen Zhao suggested that price growth could slow more broadly in the coming months. However, any deceleration is expected to be gradual due to the pent-up demand from the Millennial generation, which will likely continue to support the market. “The consensus expectation was that rates would have eased by now, bringing more demand and supply and higher transaction volume,” Zhao said. “But instead, we’re continuing to slog around the bottom that we reached about 18 months ago.”
Key Takeaways:
The US housing market is seeing an increase in listings, but buyer activity remains low.
High mortgage rates are significantly reducing homebuyer interest.
Median sale prices continue to rise despite the cooling market.
Regional variations are notable, with some areas recovering while others stagnate.
The long-term market outlook depends on potential interest rate cuts and Millennial demand.
Conclusion:
The US housing market is facing a challenging period as high mortgage rates and rising home prices deter potential buyers. While some regions are starting to see improvements, overall market conditions remain tough. The situation may improve with possible interest rate cuts, but for now, the market continues to struggle with high borrowing costs and growing inventory.
