The real estate market in the United States hasn’t quite been in freefall, but it’s been at its most volatile point in the last few years. Between massive demand being driven by the COVID epidemic and then ballooning mortgage costs due to the US Federal Reserve’s attempts to combat inflation by raising interest rates, the markets have, for lack of a better term, been all over the place.
Yet thanks to a new report recently released by the National Association of Realtors (NAR), this month’s housing trends show some major promise for the future. Perhaps there is an end to volatility in sight, especially if the new NAR data is to be believed. However, what’s still unclear is just how good this news is going to be. Let’s take a look at the new report in greater detail.
The NAR report, which reveals home sale statistics for the month of March, shows that last month existing home sales fell by 2.4 percent, with the majority of experts pointing to higher mortgage rates as the culprit. Looking at sales figures year-on-year, March 2022’s sales figures were a whopping 22 percent higher. This might seem like it’s cause for alarm, but the end result is that the lack of buyer activity means that remaining buyers could benefit from less competition.
Meanwhile, median home prices also declined during this same period, but only marginally. March home prices were down by 0.9 percent year-on-year, with the new median price holding relatively steady at $375,700. Inventory levels also decreased, even despite available home supply being at nearly historic lows. Unsold existing home inventory increased by 1 percent over the prior month’s figures to 980,000 units.
So what do these new developments tell us? Combining the three aspects revealed by the report: lessening competition, marginally lower prices, and better choice in inventory, means that the March housing market was moving in the right direction, though perhaps sluggishly. Yet the more complete story is that these are simply national averages. Home price decreases tend to occur in markets where properties have historically been quite expensive and still are. Additionally, depending on the type of property you might be on the lookout for, prices and inventory levels are going to be quite different.
What is clear, though, is that the housing market is attempting to adapt to changes in the overall real estate environment, especially those driven by changes in mortgage rates. We’re still not quite there yet, though, as there’s simply not enough supply to match demand. This might change for the better going forward if March’s movements are sustainable, or the trend might stall. There’s no way to know for sure just yet.
According to NAR’s research, first-time buyers weren’t resting on their laurels last month. In fact, 28 percent of homes were purchased by first-time buyers in March, which is up a single percentage point from the previous month. However, year-on-year activity for first-time buyers indicates that March 2022 saw these buyers make up 30 percent of that month’s home purchases. This shows that, even though the markets may be recovering from last year’s slump, there’s still some way to go before they recover to their prior numbers.
Yet even though home sales declined in March as inventory levels increased, properties still changed hands quite rapidly this month. The NAR found that the typical length of time properties stayed on the market was just 29 days. This is, on average, five days fewer than properties spent on the market in the previous month. Still, year-on-year tells a different tale, with March 2022’s figures revealing that homes only spent 17 days on the market on average. This, like first-time buyer figures, shows how much the market has changed over just a scant 12 months.
It’s clear that one of the major players in recent housing trends is almost certainly average mortgage rates. Average 30-year fixed rates today are much higher than they were just a year ago, and even then they were on their way up from historic lows of 2021. A typical rate today is around 6.27 percent, whereas in April of 2022 it was closer to 5 percent.
Thankfully, the worst of these rate hikes is likely to be behind us. The Fed has strongly indicated it is slowing down its approach to base rate increases both in frequency and amplitude as inflation begins to ease. While there may be a handful of more modest base interest rate increases destined for the next coming months, they’re likely to be fewer and far between, giving room for borrowers to breathe.
Right now, the most recent housing trends indicate some cautious optimism. Small but noticeable gains in March, if they continue going forward, have the potential to build up momentum and begin revitalizing the real estate market once again. Yet at the same time, it’s still too early to see if this trend will continue in a positive direction just yet. We’ll simply need to watch and wait carefully to see how the markets respond to both internal and external forces going forward.
One thing does remain clear, though: the housing markets of today are indeed a brave new world and one that isn’t going to change rapidly anytime soon. The new normal of higher mortgage rates, relatively low inventory, and relatively high prices are going to be with us for the foreseeable future unless that momentum does build. Until then, be sure you know what you’re getting yourself into if you’re looking to purchase a new property in these market conditions!