The housing market is grappling with a concerning trend as the number of US homes for sale has reached record low levels, according to real estate brokerage Redfin Corp. This scarcity of listings, exacerbated by rising mortgage rates, has created a challenging environment for prospective buyers and has led to price increases in some markets.
In May, active listings of homes for sale fell by 7.1% on a seasonally adjusted basis, representing the lowest level since Redfin began tracking the data in 2012. Furthermore, the number of homes for sale was down by a staggering 38.6% compared to pre-pandemic levels. These figures paint a grim picture of the housing market, signaling a stark decrease in available options for potential buyers.
These results were coherent with other analysis that suggest US homes for sale have been under pressure since several months. According to Zillow data, US active listings fell on a YoY basis in early June.
High Mortgage Rates and Lock-In Effect
One of the primary reasons behind this decline is the reluctance of homeowners to sell their properties. Many homeowners are choosing to stay put, as moving would entail giving up their current, more affordable mortgage rates. The average 30-year-fixed mortgage rate in May, more than doubled compared to May 2021. In this context, according to another Redfin report, “more than nine of every 10 (91.8%) US homeowners with mortgages have an interest rate below 6%”. In addition, the report also shows almost 60% of mortgage holders have a rate below 4%!
This substantial spike in interest rates has dissuaded individuals from entering the market, further exacerbating the shortage of homes for sale. If homeowners move, they will lose their current low mortgage payment, resulting in a “lock-in” effect.
Impact on the Housing Market
The scarcity of available listings has had a profound impact on the housing market, creating a highly competitive environment for buyers. Redfin reports that nearly half of their offers in May were met with bidding wars, while more than two-thirds of homes sold exceeded their list prices. The limited supply and heightened demand have fueled substantial price increases in certain markets, making it increasingly challenging for buyers to find affordable housing options. This situation is even worse for first-time homebuyers that usually use a mortgage to buy a property.
*Bottom line: The US housing market is experiencing a severe shortage of available homes for sale, driven by both a reluctance among homeowners to sell in the face of rising mortgage rates (“lock-in effect) and a historically low level of new listings. As a result, buyers are facing intense competition and soaring prices. However, the recent surge in housing construction offers a glimmer of hope for a potential increase in supply. The coming months will be crucial in determining whether the market can strike a balance between supply and demand, ensuring more accessible and affordable housing options for all.