Market Minute- This Week in San Diego & National Housing Market News Headlines

The housing market was already painful, ugly and anxious. Now the 8% mortgage rate is back

KEY POINTS

Housing prices are high, supply is tight and rates are surging.
The housing market is scaring off both buyers and sellers.
Now, more than ever buying and selling is incredibly personal. It’s so important to look at your long term goals like building equity and quality of life- this is why I offer a goal planning session, book today with me

Today’s housing market is a toxic mix of high mortgage rates, high prices, tight supply and strangely strong pent-up demand — and it’s scaring off buyers and sellers alike.

Prices were already high, driven by supercharged demand during the height of the Covid-19 pandemic. Now the popular 30-year fixed mortgage rate is at 8%, the highest in decades, making things even tougher. Mortgage demand is at its lowest point in nearly 30 years.

But this market is unlike historical ones because it also has a severe lack of supply. The Great Recession of 2008 and the ensuing foreclosure crisis hit homebuilders especially hard, causing them to underbuild for over a decade. They have still not made up the difference.

Who's Hurt in This Market?

Would-be sellers, meanwhile, are trapped. They have little desire to trade the 3% rate they currently have for an 8% mortgage rate on a new purchase. Sales of previously owned homes in September dropped to the slowest pace since October 2010, according to the National Association of Realtors. There are stark differences between today’s market and the foreclosure crisis era, however. Foreclosures today are extremely low, and most current homeowners are sitting on historically high home equity. The fact that so many refinanced to record-low interest rates between 2020 and 2022 also means that current homeowners have very affordable housing costs.

What’s next for housing prices?

Prices are a different story.

“Prices look to be flat from this point onwards at an 8% rate, despite the housing shortage,” added Lawrence Yun, chief economist for the NAR.

Yun noted that metropolitan markets with faster job growth and relatively affordable prices, however, will see an upswing in sales. He points to Florida markets such as Tampa, Jacksonville and Orlando, as well as Houston, Texas, and Memphis, Tennessee.

Buyers today will likely get the best deals from homebuilders, especially the large production builders such as Lennar

and D.R. Horton The builders are helping with affordability by buying down interest rates for their customers. This is something they have not typically done in the past — at least not at this scale.

What about the housing supply problem?

Construction of single-family homes is rising slowly, but it is still nowhere near meeting demand. Builder sentiment is dropping further into negative territory, due to higher rates, but the new home market is still more active than the market for existing homes.For those still wanting to upgrade to a bigger home or downsize to a smaller one, they are caught in a conundrum.

Prices are still rising due to the supply and demand imbalance, but sellers are being more flexible. So a buyer could purchase now at the higher rates and hope to get a break on the price, or they can wait until rates drop.

But when they do, there is likely going to be a flood of demand, resulting in bidding wars.

Buying a home is a very personal decision. Now, more than ever it is important to look at your long term goals. If building equity over time is one of your goals, buying now knowing prices are most likely going to continue to increase may be a smart choice.