The party is over

August 24, 2023

THE BIG SPLASH

The party is over

The housing market's recent slowdown might not be a passing phase, according to analysts. Skyrocketing mortgage rates are a major culprit, hitting a 21-year peak, with the 30-year fixed-rate mortgage averaging 7.09%.

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  • This surge has abruptly cooled the housing market, with July marking the slowest home resale rate since 2010, per the National Association of Realtors.

  • The housing market is in a bind. The scarcity of homes for sale has propped up prices, leaving buyers grappling with the squeeze between high borrowing costs and unyielding listing prices. Experts predict this gridlock will persist, as both home prices and mortgage rates are projected to remain stable.

  • Bess Freedman, CEO of Brown Harris Stevens, likened the market's shift to a deflated celebration, noting that "The party is over" due to the changing landscape. The Federal Reserve's series of interest rate hikes, aimed at curbing inflation, has led to higher costs across various financial products.

  • While autumn typically sees a cooling in the housing market, experts suggest a silver lining. A wave of new homes is on the horizon, potentially balancing the supply-demand equation and providing some relief for buyers.

  • In these conditions, potential buyers are advised to carefully assess their budget and timeline. Despite the slowdown, opportunities might still arise, even in a market that's shifted gears. Lawrence Yun, the chief economist at the National Association of Realtors, advises caution and readiness for new listings, as a more competitive market might be around the corner with lower interest rates enticing more buyers.

A SCOOP OF ANALYSIS

A recent analysis by SmartAsset, a financial services company, ranked the top 15 U.S. cities for first-time homebuyers, and the Lone Star State stole the spotlight with three cities clinching the top spots.

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  • Leading the pack is Killeen, Texas, a military town with growing appeal. Its home prices are almost half the national median, and with a surplus of homes available, buyers have the upper hand. Plus, a youthful population under 40 adds to its allure.

  • Wichita Falls and McAllen, also in Texas, secured second and third place, boasting affordable housing markets that align with their median incomes.

  • These cities stand out for a few reasons. Their median home prices are way below the national average of $416,100, reducing financial strain. Additionally, the prices are around four times the median income of their residents, a far cry from markets like Los Angeles where homes command a whopping 10 times the median income.

  • Less competition is another perk. Bidding wars are rare, and homes stay on the market for an average of just 20 days—almost double the general average.

  • While these cities may not be megacities, their projected growth of around 7.2% by July 2024 surpasses the national 5.4% average. They also house a sizable number of 25 to 39-year-olds, the prime age for first-time buyers.

A SCOOP OF COMMUTE

Homebuyers are no longer just eyeing affordability; they're factoring in commute times to the office. As companies call employees back to the workplace, even if only part-time, the importance of proximity to work has gained traction.

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  • Ghanna, Ohio and Southington, Connecticut top Realtor.com's Hottest ZIP Codes list, which includes suburbs of major metropolitan areas like Boston, New York, Chicago, Detroit, and St. Louis.

  • Homes in these sought-after ZIP codes are getting 3.6 more views on average than the rest of the country. They're also selling a month faster in 2023, creating a market dynamic driven by location and ease of commuting.

  • Realtor.com's Chief Economist, Danielle Hale, notes that people are willing to pay a premium for good locations, with commuting being top of mind during home searches. The trend is leading to a bifurcated market: while some opt for homes closer to the office, others with work flexibility seek affordable options farther away.

  • The return-to-office movement is shifting priorities, with potential homebuyers looking beyond just the price tag. It's clear that convenience matters, and ZIP codes near major job centers are garnering more attention.

  • As the landscape evolves, buyers are navigating the new normal of home buying, where commute time is now a key factor alongside affordability.

How was today's shake?

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