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Are Sellers Getting The Message? – Real Estate Market Update

Kevin Graham6 minute-read
July 13, 2022

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We’ve been talking about it for a while, but at least on one level, home buyers might finally be getting some relief. Let’s dive in.

The Big Story

On one hand, the headlines are screaming there’s some potential pressure coming out of the market if you’re a home buyer. On the other hand, things could still be a lot better.

The total number of existing homes on the market in May stood at 1.16 million, which was a 12.6% increase from the month prior. However, the same data from the National Association of REALTORS® shows the supply in the market would only last 2.6 months if sales remain at the current rate. For context, market balance is said to be achieved at 6 months’ supply. It seems the market is heavily weighted toward sellers still right now.

Supply in the market is higher in the market for newly constructed homes. There’s a 7.7 month supply in this area. The problem is that people don’t look here first because new homes tend to be more expensive than preexisting ones. Supply continues to be a big limiting factor in the purchase market right now.

More News You Can Use

With that, let’s dive deeper on some the other big economic reports affecting the real estate industry. As always, this portion of the report is supported by the analysis from our friends at Econoday.1

Consumer Price Index (CPI)

Inflation is up all over the economy. It was up 1% overall in May and 8.6% since last May. A lot of that inflation comes from food and energy. When these were taken out, prices were up 0.6% for the month and 6% in the last 12 months.

However, shelter is also a huge contributor, with costs up 0.6% in May and 5.2% in the last year. Shelter is about 33% of the overall consumer inflation calculation.

Retail Sales

There are signs that the consumer is starting to feel the pinch. Sales in the retail sector were down 0.3%. When vehicles were removed, sales were up 0.5%. When further taking out gas, sales did rise 0.1%.

However, of most interest to us in real estate are sales at furniture and home furnishings stores as well as building and garden equipment. Sales at furniture stores were down 0.9% in May. There was a rise in sales of building material and garden equipment, up 0.2%.

Housing Market Index

Builder sentiment in the housing market was down 2 points at 67 in June. Taking a look at the individual components, the current sales indexes down one point at 77. However, the index for anticipated sales over the next 6 months is down 2 points at 61. Mortgage rates are having an impact on sentiment. Traffic of potential buyers going through homes was down 5 points at 48.

New Residential Construction

Taking a look at completions, which have the biggest immediate impact on new supply coming on the market, these were up 9.1% in April and 9.3% since last April at a seasonally adjusted annual rate of 1.465 million. Among these, 1.043 million were single-family completions, up 2.8%. There were 417,000 multifamily completions.

When it comes to housing starts, these were down 14.4% at 1.549 million, 3.5% lower than last year. Builders may be making adjustments given higher interest rates. Meanwhile, single-family housing starts were down 9.2% at an annual rate of 1.051 million. There were 469,000 multifamily starts in buildings with 5 units or more.

Building permits were down 7% at 1.823 million on an annual basis. The good news is this is 0.2% higher than the same time a year ago. Single-family construction permits were down 5.5% at 1.109 million, while there were 592,000 multifamily permits.

Existing Home Sales

We talked supply a bit above, but the annual rate of existing home sales came in at 5.41 million, which is down 3.4% for the month and 8.6% for the year. This marks 4 straight months of declines.

In particular, single-family sales were down 3.6% for the month and 7.7% compared to a year ago at an annual rate of 4.8 million units. Sales of multifamily homes were down 1.6% in May at 610,000. This is down 15.3% from a year ago.

As mentioned earlier, supply is up, but there is increasing evidence it’s because people are trying to sell at the top of the market. The median sale price was up 3.1% in May at $407,600, which has risen 14.8% for the year.

New Home Sales

Hey, some good news! New home sales are up 10.7% at 696,000 on an annual basis. It’ll be interesting to see if this is a blip, but take whatever you can get, right?

Median prices of new homes were down 1.3% at $449,000, so some discounting may have contributed to that. However, in other areas of the report, it looks like this has more to do with a higher volume of sales among lower-priced homes. The average price in a single-family home sale was down 10.2% at $511,400.

Some interesting insight into how soon people will be getting the keys to those homes. Of the sales, 27% are of units not started. 45% are under construction, while a further 27% have been completed.

Pending Home Sales Index

The number of existing homes with a contract in place for sale was up 0.7% at an index level of 99.9. The increase was somewhat unexpected, but the rate of pending sales is still down 13.6% from last year. Higher rates don’t help, but supply is an issue.

Case-Shiller Home Price Index

There may be some relief on the supply side, but it hasn’t shown up as yet when it comes to prices. It is worth noting that this data covers April, and it’s a 3-month rolling average, but still.

Prices were up 1.8% on a seasonally adjusted basis. On an unadjusted basis, this was up 2.3%. Finally, looking at price increases over the last 12 months, they’re up 21.2%.

FHFA House Price Index

There are some fundamental differences between this and the Case-Shiller index. This is a month-to month look as opposed to a rolling average. It’s also nationwide rather than looking at 20 cities. However, FHFA only looks at conventional loans, whereas Case-Shiller looks at all purchase transactions. However, the directionality is the same.

According to this index, home prices were up 1.6% in April and have gone up 18.8% on the year.

Consumer Confidence

Overall consumer confidence was down 4.5 points at 103.2. Buying plans for homes are considered relatively steady according to the analysis released with the index, but they are off somewhat based on higher interest rates.

Gross Domestic Product (GDP)

GDP is the most prominent measure of economic growth. In the final estimate of the first quarter, the economy shrank 1.6%. When it comes to personal consumption expenditures however, these were up 1.8%.

The good news if you’re in real estate is that residential investment was up 0.4%, which helped offset some of the economic downturn seen in the first quarter.

Mortgage Rates

The market in mortgage rates has been fairly volatile lately. If your clients see a rate they like, encourage them to lock it as soon as possible. Our RateShield® program allows prospective home buyers to lock a rate for up to 90 days while they continue to shop for a home.2

In terms of upcoming events, it’s widely expected that the Federal Reserve will soon raise the federal funds rate 75 basis points to a range between 2.25% – 2.5%, but it’s hard to say how this will affect mortgage rates because the increase may have well been priced into current rates in the last week. Either way, best not to wait around.

The average rate on a 30-year fixed mortgage last week fell 40 basis points to come in at 5.3% with 0.8 points paid in fees, according to Freddie Mac. This is still up from 2.9% a year ago.

The average rate on a 15-year fixed with the same number of points paid was down 38 basis points at 4.45%. This has still increased from 2.2% last year.

Finally, the average rate on a 5-year treasury-indexed, hybrid adjustable-rate mortgage with 0.4 points paid was down 31 basis points at 4.19%, which is still up from 2.52% last year.

Now that you know what there is to know, go forth and share it with your clients!

1Important Legal Notice: Econoday has attempted to verify the information contained in this calendar. However, any aspect of such information may change without notice. Econoday does not provide investment advice, and does not represent or warrant that any of the information is accurate or complete at any time. Copyright 2022 Econoday, Inc. All rights reserved.

2 RateShield Approval is a Verified Approval with an interest rate lock for up to 90 days. If rates increase, your rate will stay the same for 90 days. If rates decrease, you will be able to lower your rate one time within 90 days. Please contact your Home Loan Expert for additional information. This offer is only valid on 30-year FHA, VA and conventional purchase loan products. RateShield Approval not eligible for clients with a signed purchase agreement, on Charles Schwab loans, or new construction loans. Additional conditions and exclusions may apply.

Kevin Graham

Kevin Graham is a Senior Blog Writer for Rocket Companies. He specializes in economics, mortgage qualification and personal finance topics. As someone with cerebral palsy spastic quadriplegia that requires the use of a wheelchair, he also takes on articles around modifying your home for physical challenges and smart home tech. Kevin has a BA in Journalism from Oakland University. Prior to joining Rocket Mortgage he freelanced for various newspapers in the Metro Detroit area.