gopixa
The U.S. housing market appears to be undergoing a positive transformation as new listings are picking up and home price growth is returning to prepandemic levels.
Over a volatile three-year period, home prices rose as ultra-low mortgage rates triggered a buying frenzy, only to retreat when borrowing costs rose amid the Federal Reserve’s mission to contain inflation. Now, while mortgage rates remain high, their reduced volatility compared to the peak of the pandemic has played a key role in stabilizing home price growth.
In February, home prices rose 0.6% M/M, in line with the average monthly gain of 0.6% in the roughly eight years before the pandemic, online broker Redfin (RDFN) said in a recent report ). Likewise, on a y/y basis, prices rose 6.7% in February, compared to the average increase of 6.9% in pre-pandemic years. This is based on the February Redfin Home Price Index, an equal-weight repeat sales indicator, covering the three months ending February 29, 2024.
High mortgage rates, caused by the Fed’s aggressive tightening cycle, have dampened homebuyer demand over the years, but “this does not translate into lower home prices today because there are not yet enough homes for sale, although new listings are picking up,” the report noted.
On a seasonally adjusted basis, new listings gained 3.8% M/M in February to the highest level since September 2022, Redfin said in a separate report, a sign that home supply is finally starting to expand from exceptionally low levels. restricted.
This is “great news for buyers who have been competing for a small pool of homes for sale for months,” said Chen Zhao, Redfin’s head of economic research. “However, many house hunters are hesitant to pull the trigger because mortgage rates and home prices remain high.”
The current housing shortage, resulting from the post-pandemic increase in material costs, interest rates and inflation, effectively puts the spotlight on the so-called lock-in effect, whereby homeowners are unwilling to put their homes up for sale because they don’t want to give the low mortgage rates they had locked in before the Fed started raising rates.
Zillow (ZG) (Z)’s latest monthly report also showed that new existing home listings on its platform increased 20% in February compared to January and 21% year over year. And, just above 900,000, there were more homes for sale in February than in any February since 2020, the company added.
“We are finally starting to see homeowners who have been putting off moves coming back into the market,” said Skylar Olsen, Zillow’s chief economist. “For many families with record net worth, waiting for potentially lower rates later in the year may not be worth it.”
A frame of reference
When the Fed began its rate hike campaign in March 2022, the average 30-year fixed mortgage rate was about 4%. The average 30-year fixed mortgage rate was between 2% and 3% in 2020, when the pandemic shuttered the economy and the Federal Open Market Committee cut rates to near zero to stimulate spending. In short order, pandemic-induced inflationary pressures prompted the Fed in March 2022 to begin what became its most aggressive rate-hiking campaign in decades, with mortgage rates topping 4% at the time. Raising the benchmark lending rate to 5.25-5.50% from near zero, mortgage rates at the end of 2023 reached 7.79% – the highest level seen in more than 20 years – before falling to 6 .87% on March 21, according to Freddie Mac data on the St. Louis Fed’s FRED database.
So far in 2024, the year the Fed expects to begin easing monetary policy, mortgage rates have remained in a relatively narrow range of about 6.60% to 6.95%. Mortgage rate volatility may be easing, but housing affordability is still at depressed levels, hence the persistent stalemate between buyers and sellers.