Housing Market Insights: Annual Home Price Spike of 2%, Courtesy of Low Inventory and Intense Competition

The housing market has been heated lately, with home prices recording their steepest surge in over seven months. This is fueled by the current supply-demand imbalance, with sky-high mortgage rates causing homeowners to think twice before putting their property up for sale. Consequently, monthly housing expenses are touching unprecedented levels, and we can expect this upward trend in prices to linger for a while.

As of the four weeks concluding on July 16, the average home in the U.S. traded hands for $382,500, reflecting a 2.1% annual rise – the highest since December 2022. This follows an encouraging second consecutive price hike after almost half a year of diminishing prices. Significant growth is seen in some metropolitan areas, with the housing market in places like Milwaukee demonstrating remarkable resilience throughout the pandemic. However, areas that experienced a price surge during the pandemic, like Austin and Phoenix, are now seeing a drop.

Given the elevated home prices and mortgage rates, the median homebuyer is now grappling with a record monthly payment of $2,656.

While inflation cooling has caused daily average mortgage rates to slightly drop, the housing expenses are expected to stay high. This is due to the anticipated price inflation, courtesy of heightened competition for the limited homes available on the market.

With more buyers than sellers, prices are naturally soaring. The Redfin Homebuyer Demand Index, which assesses early-stage demand by keeping track of home tour requests and other buying services, rose by 2% from the previous year. Despite a 15% year-over-year decline in pending home sales, new listings plunged by 25% with low mortgage rates keeping homeowners at bay. There has been a 16% drop in total homes available for sale – the biggest in 18 months. Moreover, inventory recorded an unusual monthly decrease.

Jordan Hammond, a premier agent at Redfin from Raleigh, NC, shares his observation, “Even with the high mortgage rates making buyers apprehensive, we’re witnessing bidding wars in several market pockets due to the severe lack of good options.” According to him, condos, townhouses, and new-build homes are selling like hotcakes, primarily since they don’t require extensive work and high monthly mortgage payments leave people with little room to splurge on home improvements. Following over a year of elevated rates, buyers are now adapting to the situation by lowering their budgets, seeking smaller homes, and getting creative to reduce their monthly payments, such as opting for rate buydowns or making substantial down payments.

Key data points of homebuying activity:

• The daily average 30-year fixed mortgage rate stood at 6.87% on July 19, falling from a six-month high of 7.22% recorded two weeks prior. As of the week ending July 13, the average 30-year fixed mortgage rate was the highest since November, at 6.96%.
• Mortgage-purchase applications during the week ending July 14 fell by 1% from the previous week (seasonally adjusted) and were down 21% from the same period last year.
• Google searches for “homes for sale” were essentially flat from a month earlier during the week ending July 15, representing a 14% decline from a year ago.
• As per home tour technology company ShowingTime, touring activity as of July 17 increased by 17% from the beginning of the year, while there was a 1% drop during the same time the previous year.

Salient takeaways from the housing market in over 400 U.S. metro areas:

• The median home sale price was $382,500, marking a 2.1% rise from a year ago.
• Home prices experienced the greatest growth in Milwaukee (12.2% YoY), Miami (9.7%), Cincinnati (9.5%), Newark, NJ (7.3%), and Anaheim, CA (6.9%).
• Home prices fell in 20 metro areas, with Austin, TX (-9.2% YoY), Detroit (-5.5%), Las Vegas (-5.5%), Phoenix (-5.1%), and Fort Worth, TX (-5.1%) witnessing the largest declines.
• Newly listed homes had a median asking price of $392,875, a 2.1% increase from last year.
• The monthly mortgage payment for a median-priced home hit a record $2,656 at a 6.96% mortgage rate, up 15% from the previous year.
• Pending home sales were down by 14.8% year over year.
• New home listings fell by 25.1% YoY.
• The total number of active listings (homes listed for sale at any point during the period) dropped by 16.1% YoY.
• Roughly 30% of homes that went under contract received an accepted offer within the first two weeks on the market.
• Homes sold were on the market for a median of 27 days.
• Around 36.6% of homes sold above their final list price.
• On average, 5.7% of homes listed each week experienced a price drop.
• The average sale-to-list price ratio was 100%, down from 101.2% the previous year.