The housing market just can’t catch a break. Soaring interest rates and home prices have put a damper on home sales.
Now comes news that housing starts dropped 9.6% in July from June to an annual rate of 1,446,000. That’s down 8.1% from July 2021 and represents the lowest level since February 2021.
Meanwhile, about 63,000 home-purchase agreements collapsed in July, equal to 16.1% of homes that went under contract that month. That's up from 15% in June and 12.5% a year earlier, according to real estate brokerage Redfin.
The 16.1% cancellation rate represents the highest since Redfin began compiling the data in 2017, except for March and April 2020, “when the onset of the coronavirus pandemic brought the housing market to a near standstill,” as Redfin put it.
“The housing market is slowing, as higher mortgage rates sideline many prospective home buyers,” Redfin said.
But there’s a bright side to that.
'Newfound Bargaining Power'
“With competition declining, the house hunters who are still in the market are enjoying newfound bargaining power,” Redfin said. That’s a “stark contrast from last year, when they often had to pull out every stop in order to win.”
That bargaining power already has led sellers to begin lowering their prices, said Redfin Deputy Chief Economist Taylor Marr.
The cities with the highest purchase cancellation rates in July were Jacksonville, Fla. (29.3% of homes that went under contract that month), Las Vegas (27.4%), Lakeland, Fla. (26.2%), New Orleans (25.9%), and San Antonio (25%).
Previously, the National Association of Home Builders reported that builder confidence fell for the eighth straight month in August, marking the worst period since the housing crisis began in 2007.
The NAHB/Wells Fargo index of builder confidence slid 6 points in August from July to 49, breaching the break-even measure of 50 for the first time since May 2020, early in the covid pandemic.
“Elevated interest rates, ongoing supply chain problems and high home prices continue to exacerbate housing affordability challenges,” the NAHB said in a statement. It’s “another sign that a declining housing market has failed to bottom out.”
Things are so bad that NAHB Chief Economist Robert Dietz said we’re suffering a “housing recession.”
As for prices, The median existing-home sales price hit $416,000 in June, jumping 13.4% from a year earlier, according to the National Association of Realtors (NAR) That represents 124 straight months of year-over-year increases, the longest streak on record.
And the 30-year fixed mortgage rate averaged 5.22% in the week ended Aug. 11, up markedly from 2.87% a year ago, according to Freddie Mac.
"Home prices have increased at a pace that far exceeds wage gains, especially for low- and middle-income workers," NAR Chief Economist Lawrence Yun said in a statement.