Hi, I’m Lawrence Yun, chief economist with the National Association of REALTORS®, and in July, we saw home sales rise modestly for the second consecutive month after several months of a decline. This is indicating that home sales are beginning to settle down. If we jog our memory backwards, in the early months of the pandemic, scary time. Home sales plunged, but when the lockdown was lifted, we saw sales surge way beyond the pre-pandemic levels. Then sales began to decline, but now in the past couple of months, small increases clearly implying settling down in the home sales. It is still above pre-pandemic, which means that the market is strong.
The good news is that inventories are beginning to rise. More choices for consumers and consumers want to take advantage of the more choices along with still very favorable mortgage rates. One sign that the housing market is beginning to turn is that the number of multiple offers are beginning to lessen. Furthermore, homes that are being sold above the list price are also coming down.
The number of percentage it used to be 60% of all homes were sold above this price now in the latest data 50%, so the market is still strong but less heated than before. In a sense, this is a movement for a more balanced market, which is a welcome trend.
One surprising development for the housing market is because the home prices being so high we are finding that some would-be first-time buyers are simply giving up or cannot obtain mortgage for higher prices. Consequently, the rental demands are rising, and when we look at the many sources on rent data, it is rising six, seven, eight percent above one year ago.
The Federal Reserve has been buying mortgages to provide maximum liquidity but they may lessen some of that activity which means that mortgage rate may begin to rise in 2022. The Federal Reserve will be raising their short-term interest rate which will also nudge up the mortgage rates. The reason why the interest rate policy would be towards higher rates are the economy is recovering.
The job growth remains strong, enhance some of the job growth especially in the affordable markets, particularly the midwest. You look at Indiana, Illinois, Wisconsin, very affordable home prices, so people with decent jobs should be able to purchase a home even in a rising interest rate environment. Some of the expensive coastal markets may feel the pinch of higher interest rates but so far we are not seeing a measurable impact on high-cost regions as of yet.
So, in sum, the housing market appears to be settling down, no longer the super frenzy activity. The rental demand is rising and we need to ensure that we build more homes, single-family homes, apartment buildings, because we need to relieve the housing shortage. Thank you for listening.
Copyright NATIONAL ASSOCIATION OF REALTORS®. Reprinted with permission.