Mortgage Analysts Anticipate Continued Slowdown for Remainder of Year
Written By: Joel Palmer, Op-Ed Writer
After reaping the benefits of an unexpected housing boom during the height of the COVID pandemic, mortgage underwriters and processors are witnessing more signs that a significant slowdown is imminent.
Real estate brokerage firm Redfin reported that the average sale-to-list ratio fell below 100 percent for the first time since March 2021. Demand for homes was such that buyers were paying a premium above list price — 101.4 percent on average — for the past year-and-a-half. In August, that ratio fell to 99.7 percent. While few buyers would balk at getting nearly 100 percent of list price, the ratio decline may be a sign that demand is cooling, according to Redfin.
Redfin data also shows that:
Fewer people searched for “homes for sale” on Google, with searches during the week ending September 3 down 25 percent from a year earlier.
Pending home sales were down 19% year over year, the largest decline since May 2020.
New listings of homes for sale were down 18 percent from a year earlier, also the largest decline since May 2020.
"The post-Labor Day slowdown will likely be a little more intense this year than in previous years when the market was super tight,” said Redfin Chief Economist Daryl Fairweather.
The latest data from the Black Knight Home Price Index shows that for the first time in 32 months, home prices saw a month-over-month dip in July.
The median home price fell by 0.77 percent in July, the largest single-month drop since January 2011. On a seasonally adjusted basis, July’s dip ranked among the 10 largest monthly declines on record, dating back more than 30 years.
“With housing affordability still near its worst levels in more than 35 years, downward price pressure is likely to continue in the coming months,” Black Knight said. “It would require some combination of either a 30 percent rise in incomes, a 2 percentage point decline in 30-year rates, or home prices pulling back another 20 percent to bring affordability back in line with long run averages.”
In a bad sign for refinance and home equity loan business, Black Knight also reported that tappable equity fell 5 percent in the last two months after peaking in May. The company anticipates that the market will experience a quarterly decline in overall tappable equity in the third quarter of this year, which would be the first quarterly decline since 2019.
“Some of the nation’s most equity-rich markets have seen significant pullbacks, most notably among key West Coast metros,” the company said.
With all of these negative trends, it’s not surprising that both potential home buyers and home sellers are not as optimistic about the near future as they were earlier this year.
Fannie Mae reported that its Home Purchase Sentiment Index® (HPSI) decreased 0.8 points in August to 62.0, its sixth consecutive monthly decline. Fannie said high home prices and elevated mortgage rates continue to weigh on consumer sentiment, particularly home-selling sentiment.
Month over month, consumers reported that home-selling conditions have worsened. In August, 59 percent of survey respondents said now is a good time to sell a home, down from 67 percent the previous month. The percentage who say it’s a bad time to sell increased from 27 percent to 35 percent.
Consumers also reported that homebuying conditions have improved, but 73% continue to report that it’s a “bad time to buy.”
“With home prices expected to moderate over the forecast horizon and economic uncertainty heightened, both homebuyers and home-sellers may be incentivized to remain on the sidelines – homebuyers anticipating home price declines and potential home-sellers not keen to give up their lower, fixed mortgage rate – contributing to a further cooling in home sales through the end of the year,” said Doug Duncan, Fannie Mae senior vice president and chief economist.
About the Author
As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
