Buyers waiting on the sidelines to buy a home are waiting for two things to happen: A decrease in mortgage interest rates, and a decrease in home values.
While the Federal Reserve’s hike to its Fed Funds rate will determine where interest rates will go, the expected decline in home values largely depends on their owners.
According to Ciaran Clancysenior US economist at Pantheon Macroeconomics, the rate of decline in home values could accelerate if previously reluctant sellers begin flooding the market with additional inventory in an effort to avoid further price cuts.
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Clancy emphasized that while home sales and home construction have changed significantly to reflect the reduced demand, home prices still have a long way to go.
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Home prices have recently started to trend down on a monthly basis due to a lack of supply, Clancy said in a note, “but inventory is already getting higher as many previously reluctant sellers worry about their home getting a price much lower. if they continue to wait to sell.”
In October, the number of homes sold in the US fell for the ninth consecutive month as buyers withdrew from the market due to rising mortgage rates and high prices.
According to a survey by the National Association of Realtors, existing home sales were down in October compared to a year earlier and down 5.9% from September.
There were declines in all regions of the US month-over-month and year-over-year.
That was the longest sales streak ever recorded, dating back to 1999, and continues a trend that began to slow in February.
Sales in October fell to the lowest level since May 2020, during the pandemic lockdown, when the housing market was at a standstill. Otherwise, last month’s sales were the lowest since December 2011.
Also read: The Fed Is Damaging the Housing Market, Not Inflation
“The trickle of supply could be a quick flood, however, increasing the speed – if not the final depth – of the reduction in house prices,” said Clancy. “We think prices need to fall about 20% from spring peaks to reach a sustainable level.”
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