Nearly one in five sellers dropped prices during the four week period ended May 22, Redfin Corp. said in a report Thursday. Other measures of how hot the market is, including a house's time on market and the percentage of homes selling above listing price, have also plateaued. Consumers are contending with some of the highest mortgage rates in years, despite the dip in those figures in the past two weeks. Higher rates, coupled with economic uncertainty, are raising questions about whether the US housing boom has met its limit with signs emerging that the once-intense pace of the market could be decelerating.
Sharply higher mortgage rates have caused a sudden pullback in home sales, and now sellers are rushing to get in before the red-hot market cools off dramatically. "Rising mortgage rates have caused the housing market to shift, and now home sellers are in a hurry to find a buyer before demand weakens further," said Redfin Chief Economist Daryl Fairweather.
Sellers clearly see the market softening. Pending home sales were down just over 9% from April 2021, according to the National Association of Realtors. May 2022 will see a larger decrease. This index measures signed contracts on existing homes, not closings, so it is perhaps the most timely indicator of how buyers are reacting to higher mortgage rates. It marks the sixth straight month of sales declines and the slowest pace in nearly a decade.
Local housing supply is beginning to loosen, Realtor.com indicates
Dallas-Fort Worth is seeing a dramatic increase in homes up for sale over the last few weeks as many sellers look to take advantage of the market while it's still red hot. The number of active home listings last week spiked 41.6% from a year prior, the fifth consecutive week of gains, according to Realtor.com. Until April, the company posted supply declines in D-FW every week since March 2020.
The region saw the highest annual growth for any week on record since the company began tracking this figure in 2017.
New listings in D-FW rose 32.4% last week, signaling a huge influx of sellers putting homes on the market as summer approaches. "Sellers have been hearing for about two years what an amazing time it is for them to sell ... and they've seen their equity just grow like crazy," said Mike Reddell, senior executive vice president and managing director for Douglas Elliman Real Estate in Dallas. "With the stock market being wobbly and mortgage rates rising, I think sellers that have been thinking about this for a while, more of them are pulling the trigger and putting the house up for sale."
Reddell said if he were in a position to sell his house, he would do it right now.
Redfin reported May 15 that new listings throughout the U.S. climbed nearly twice as quickly as they did at the same time last year. "Rising mortgage rates have caused the housing market to shift, and now home sellers are in a hurry to find a buyer before demand weakens further," Daryl Fairweather, chief economist for Redfin, said in a statement.
Mark Wolfe, broker and owner of RE/MAX DFW Associates, said he has seen a significant spike in listings over the past few months. In his home city of Coppell, he said, there would have been only about five or six homes on the market at any one time a few months ago. In just five days last week, he said, 21 homes went up for sale. "We've been a boom economy, and now with the economy showing signs of trouble, people want to still get the most for their dollar while they can if they think that the prices might go down," Wolfe said. "I don't know if that's going to happen. I doubt that's going to happen."
The market is nowhere near balanced between buyers and sellers. Dallas-Fort Worth had just under a month of home supply in April, according to the Texas Real Estate Research Center at Texas A&M University. A balanced market would have about six months' worth of inventory. The competitive pressures have sustained high price growth over the past few months. The median home in April sold for $425,576, up 25% from a year earlier. The number of sales in April was down 7% from a year ago, but the dollar volume increased 13% to $4.2 billion.
Rising mortgage rates combined with record-high home prices have drastically increased the monthly cost of buying a home. Homebuilders have also noticed demand cool down through the past few months. "We've been in an unrealistic market for two years, and we're probably headed back to a normal market," Wolfe said. "It might be nice to just have a healthy even market. I'm hopeful that's what we're going to go into."
Housing Prices in DFW and Austin Have Surged Dramatically
The last time the national housing bubble burst, Dallas-Fort Worth and the state of Texas emerged comparatively unscathed from the massive 2008 home price corrections and foreclosure wave that slammed most of the country, including other Sunbelt markets like San Diego, Miami, Phoenix and Las Vegas.
A big reason was that home prices in the Lone Star State didn't skyrocket in the early 2000s preceding the subprime-mortgage-induced smackdown by nearly as much as prices in California, Florida, Arizona, and Nevada. Texas hadn't partied as hard as its Sunbelt compadres heading into the crash, so its hangover wasn't as bad.
This time, Texas — DFW and Austin especially — may not be so lucky if the national housing boom is a bubble and a popping ensues, a new study suggests. This time, housing prices in DFW and Austin, and to a lesser degree Houston and San Antonio, have surged, driven in large part by population and jobs growth spurred by companies large and small relocating to the state.
As of April 30, Austin was the second most overpriced housing market in the nation, and DFW was the 18th most overpriced, according to research by Florida Atlantic University. The recent heavy demand for homes put buyers at a "major disadvantage," said Ken H. Johnson, an economist in FAU's College of Business. To have an offer accepted, buyers had to outbid multiple competitors, he points out. Soaring prices fueled by the onset of the pandemic in 2020 and near-record-low mortgage rates have pushed the national housing market into a "crisis stage," and a reckoning is due, the Florida Atlantic researchers' latest report says.
On one hand, the reckoning will likely hit the areas of the country with the biggest run-ups the hardest. On the other hand, areas of the country with persistent inventory shortages and increases in population, such as Texas, Florida and parts of the Northwest, likely won't see as steep of declines in home values, the researchers say.
The red-hot housing market is starting to cool this spring, after nearly two years of soaring prices and shrinking inventories.
Why it matters: Homebuyers and renters who've been struggling to find an affordable place to live will have more choices and fewer bidding wars — if only just a little.
What's happening: The supply of homes for sale is finally increasing, after being depleted over the past year and a half, Zillow reports.
More houses for sale should help slow the frenetic pace of the U.S. market, in which the median home was snatched up in just six days in April.
New home construction has also bolstered the housing supply, says Lawrence Yun, chief economist for the National Association of Realtors.
The big picture: The dynamics of the housing market are shifting in many ways, with rising mortgage rates becoming a factor for the first time in a while.
Between the lines: As inventories rise, prices soften. Redfin reports 15% of home sellers cut their asking price last month — up from 9% a year ago.
Be smart: The cooldown is not a sign of a housing crash — just an indication that we're going to return to a more balanced market, says Tucker of Zillow.
What to watch: Some overheated markets — like Charlotte, North Carolina, and Phoenix — could see a price correction over the coming year, Moody's Analytics chief economist Mark Zandi tells Fortune.
Shares of Redfin were falling sharply Friday after the online real estate brokerage said it expected a first-quarter loss wider than analysts' estimates. The company said it expects to report a loss in the first quarter of $115 million to $125 million vs. analysts' forecasts that called for a loss of $75 million. For all of 2021, the company lost $109.6 million. Redfin said it expects first-quarter revenue of $535 million to $560 million. Revenue at the company's properties segment, which including iBuying — a business that rival Zillow (Z) has been exiting — was forecast at between $330 million to $350 million. For the fourth quarter, Redfin reported a loss of 27 cents a share vs. a profit of 11 cents a year earlier. Analysts expected a fourth-quarter loss of 31 cents.
Analysts at RBC Capital Markets downgraded their rating on Redfin shares to Sector Perform from Outperform, and lowered their price target on the stock to $23 from $60. "We throw in the towel on RDFN as the primary points of our thesis appear broken and unlikely to show enough improvement in the coming year to warrant an Outperform rating," RBC analysts wrote in a research note. They added that share gains at Redfin "are simply not materializing at a fast enough rate," and said "home inventory challenges" and "lack of secular story should make for slower growth."
U.S. home sales unexpectedly increased in January, but investors paying in cash are squeezing out first-time buyers from the housing market amid record low inventory and higher prices. Existing home sales surged 6.7% to a seasonally adjusted annual rate of 6.50 million units last month. Sales rose in all four regions, with strong gains in the Midwest, the most affordable region. Sales jumped 9.3% in the densely populated South, which is experiencing an influx of residents from other regions as companies embrace remote work.
First-time buyers accounted for 27% of sales last month, compared to 33% a year ago. Rising mortgage rates could make home buying even less affordable for this group. Individual investors or second-home buyers, who make up many cash sales, bought 22% of homes, up from 15% a year ago. Investors are renovating, and either reselling or renting the homes to take advantage of the hot housing market. All-cash sales made up 27% of transactions compared to 19% last January.
After a year of record-breaking construction, North Texas homebuilders are starting 2022 with a backlog of sales and not enough supply. Dallas-Fort Worth builders sold almost 46,000 single-family homes in 2021. Even though local builders started more homes than in any market in the country, they can't keep up with demand for new housing units in North Texas. Don't look for the supply-demand imbalance to end this year, housing analysts warn. "2021 turned out to be one of the most extraordinary years in D-FW housing history," said Ted Wilson, principal with Dallas-based housing analyst Residential Strategies. "Builders were enveloped by an unprecedented swell of housing demand that prompted the industry to rev up its production pace. "Unfortunately, as builders rushed to sell houses to the wave of buyers, the resulting surge in starts was quickly met by the reality that there were limitations to the North Texas construction capacity." A lack of labor, materials shortages and other constraints have driven up costs and stretched out average building timelines, Wilson said Thursday in his firm's quarterly market update. Unlike in previous housing cycles, North Texas builders can't meet the appetite of consumers. "There appears to be ample demand to sell houses at healthy margins but the reality is that no one is able to get houses constructed and completed as quickly as they would like," Wilson said. North Texas housing demand is being driven by a combination of demographics and relocations to the state. D-FW led the country in single family new home starts last year.
Phil Crone, executive director of the Dallas Builders Association, said most of the area's builders are focused on overcoming the unprecedented challenges of the pandemic-impacted industry. And with the prospect of both higher mortgage rates and construction costs this year, affordability issues will continue to plague D-FW builders. "We can't just have a market where only Californians can afford it."
Inflation Concerns Are Sweeping the Nation
When North Texas homes hit the market, they're getting plenty of attention from potential buyers. The number of showings per home listing is among the highest in the nation. That's according to the latest data from ShowingTime, a home-showing management and market stats firm. But the bigger news is the declining available inventory. As of this past weekend according to a broker report there were only 610 active listings in the Dallas Fort-Worth area, down from over 13,000 active listings at the same time period some five years ago.
Rates are rising, inventory remains historically low and prices are sky high. Is a buyer's market on the horizon? Even as forecasters predict an uptick in homes hitting the market early this year, the most homes under construction since before the Great Recession, and more buyers to be priced out due to already high prices and rising mortgage rates, economists told Inman they don't foresee a return to what has traditionally been known as a buyer's market any time soon. Sellers remain in the driver's seat, and economists told Inman the country still has a long way to go to settle into potentially new ways of thinking about just what is a normal housing market in the modern age. So while December 2021 saw more new homes hit the market than at any other time, the country is working its way through a supply backlog that is helping to keep sellers in control. If you look at demographics, you can say that the current level of construction is pretty close to normal. But what that doesn't tell you is how much behind that total supply is. "It's still going to take a really, really long time to make up for the last 15 years of a lack of supply coming in," said Nicole Bachaud, economist for Zillow.