A top economist has warned sellers that a slowdown in home price appreciation is all but inevitable as the economy falters.
In an interview with CNBC, National Association of Realtors’ chief economist Lawrence Yun said that the housing market is already showing signs of slowing down, with rising mortgage rates adding to already high prices and making homes unaffordable to many.
It means that sellers will likely have to lower their expectations, the economist said.
“It’s just inevitable that home price appreciation will slow down in the upcoming months,” Yun told CNBC.
Yun noted that pending home sales and new home sales have both fallen to pre-pandemic levels of activity, after seeing a huge spike over the past couple of years. Moreover, home listings rose last week by 9% compared to a year earlier, meaning buyers have more inventory to choose from. More homes for sale means more competition for sellers, which may drive prices down or at the very least, ensure home price growth tapers off.
Previously, the tight supply of homes for sale was driving bidding wars and price increases.
“The worst of the housing shortage is coming to an end, and that should be welcome news,” Yun said. “Consumers were chasing after limited choices.”
While buyers may have more choices now, they’re also up against higher mortgage rates, which have increased borrowing costs considerably over the last few weeks - by more than 25% compared to last year for the median-priced home. In many cases, that could mean the higher mortgage payments will cost $500 more per month for borrowers. The 30-year fixed-rate mortgage averaged 5.10% last week compared to 2.95% a year earlier, Freddie Mac reported.
Despite rising costs and some signs of a market slowdown, Yun said homes are still selling fast. Eighty-eight percent of homes sold in April were on the market for less than a month, according to NAR data.
Still, Yun said home sellers do need to be realistic with their asking prices, as mispriced homes will linger on the market. A few weeks ago, sellers may have been able to list their homes 20% above what they could have a year ago, but now it may be 10% to 15% above a year ago.
“Sellers must clearly recognize that higher mortgage rates are squeezing away some buyers,” Yun explained.
The median existing-home sales price increased at a slower year-over-year pace of 14.8% in April, NAR’s most recent data. The median home price nationally was $391,200.