Last Year – A Spooked Market
According to the Cromford Report comparisons with this time last year are getting easier, as a year ago the market was deteriorating as demand from institutional investors and iBuyers collapsed. A steep rise in interest rates had spooked the market and ordinary buyers were holding their breath too.
Low Inventory – Low Demand
A year later we have a market which is seeing very low demand and even lower supply. With the 30-year fixed interest rate stuck around 7%, most homeowners do not want to sell, and buyers are struggling to qualify and afford a home. Buyers are unimpressed with the low inventory of re-sale homes and are increasingly turning to new built homes. Developers are enjoying strong orders, firmer prices, and healthy margins, but have relatively low inventory of homes for sale and a weak pipeline of new permits to build. The strongest sector in the housing market is single-family new construction.
The Effect of Interest Rates
Some people drastically overstate the importance of interest rates in determining home prices. Interest rates are important but when they move higher, they lower supply as well as demand. It is the balance between supply and demand that determines how prices move. At the moment supply is much weaker than demand so prices are increasing, as they have since January.
For homeowners, rising prices are reassuring. While interest rates remain at 6.75% or higher, we appear unlikely to see much improvement. In fact, rising prices will make it even harder for buyers to close on a home. However, if interest rates were to fall to 6% or below, we could see a sharp increase in demand and an improvement in supply too.
The Third Quarter
We will shortly see the average $/SF for closings overtake the figure from a year ago. At the moment the gap is 4.2%, but last year’s prices were falling fast and this year we are seeing a rise of almost 3% in just 2 months. The third quarter is notorious for weakness in average pricing, but even if closed prices stay flat for the next 3 months, annual appreciation will have turned positive by the end of the quarter.
If you are thinking about selling your home or are in the market to purchase one and need professional assistance, leave a comment below and we would be happy to answer any questions you may have.