20% Drop in Sales
Federal reserve policy pushed mortgage rates sharply up, squeezing some would-be homebuyers out of the market. Mortgage applications are down and so are home sales. For six consecutive months through July, sales of existing homes have dropped and are now down 20% from the prior year.
The downturn prompted Lawrence Yun, Chief Economist for the National Association of Realtors®, to sound the housing recession bell. But what this signifies isn’t necessarily what one would expect.
The current pullback in demand won’t necessarily trigger price reductions. Inventory is constrained, and this doesn’t look likely to change anytime soon. Many homebuilders have soured on building more homes as inflation has impacted construction costs, including labor, financing and materials, and land.
Yun notes 40% of homes continue to be sold for their full list price. The median sale price in July was up 10.8% from the prior year. However, as more people drop out of the market they can no longer afford, sellers will need to adjust their expectations.
The changing market and economic dynamics do offer buyers a little more power to influence contract negotiations. With potentially fewer bidding war situations playing out, buyers can impose contingencies, which were often jettisoned amid the stiff competition of the last few years.
The ability to complete the transaction after the buyer sells their current home, or to have an inspection done can ultimately lead to a less stressful and more satisfactory outcome. Despite the sticky elevated cost of ownership, buyers may cheer a bit of a return to normalcy.
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