The recent booming housing market that has enriched millions of home sellers since the start of the covid-19 pandemic is showing signs of collapsing in 2022, according to real estate-related data.
Rapid real estate price gains helped fuel spending and economic growth. As city dwellers headed for the suburbs in the wake of covid-19 lockdowns, inventory dropped, available land became scarcer, the cost of materials and construction labor rose and home prices skyrocketed. But rising mortgage rates and Federal interest rate hikes in 2022 have started to reverse the demand-supply imbalance, Reuters reported
“We’re heading into a housing recession and home builders are going to start holding off on new projects,” said Jerry Howard, CEO of the National Association Of Homebuilders, in a Bloomberg TV interview.
As home loan rates approach the highest in a generation, demand is falling and people are walking away from contracts at increasing rates. In June, potential buyers walked away from 15 percent of the transactions that went under contract — the highest share of cancellations since April 2020, when covid lockdowns went into effect and the housing market froze.
Other housing indexes, due out today, include the S&P Case-Shiller 20-city composite, which was expected to show that home prices, although down in May, were still more than 20.8 percent higher than a year earlier. Also due today was the Commerce Department’s new number for home sales, which was expected to have fallen by 4.6 percent in June.
That’s much more than economists projected in June and points to an unraveling housing market. Experts worry the downturn could spill over into the broader economy and possibly trigger a recession.
The median sales price of new homes fell to $402,400 in June, down from $449,000 in May after a record high of $457,000 in April, according to U.S. Census data.
And the number of new houses for sale represents the biggest glut since late 2010 in the financial crisis, Forbes reported.
A drop in mortgage applications over the past few months means this “will not be the bottom,” said Ian Shepherdson, chief economist at Pantheon Macro.
The balance of power is shifting back to homebuyers, builders said. “Sales have fallen off a cliff,” an Austin, Texas builder said. “We’re selling 1/3 of what we sold in March and April.”
Builders are lowering prices of new homes by 15-to-20 percent, a Boise, Idaho builder said.