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Rising Home Inventories: A Sign of Strength or Weakness?

by WOOWinvest
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Rising Home Inventories: A Sign of Strength or Weakness?

One of the biggest problems facing the housing market over the past 18 months has been supply shortages.

This problem seems to be alleviated.

Active home listings rose 29% year over year for the week ended July 16. That’s roughly in line with the previous two weeks’ numbers, according to Realtor.com.

To be sure, new listings fell 3% year over year in the most recent week, following a 6% drop in the week ended July 16. So inventory appears to be building up due to sluggish sales, not for homeowners eager to sell.

“We’ve now seen fewer homeowners deciding to sell for the second week in a row,” said Danielle Hale, chief economist at Realtor.com.

“Fortunately for buyers, the decline has been smaller, but will remain an important indicator to watch closely. If seller engagement loses significant momentum, the trend of market equilibrium could be disrupted.”

Mortgage rates soar

With soaring mortgage rates driving some buyers out of the market, potential sellers could become reluctant, Hale said.

“Nevertheless, homeowners trying to decide whether now is the time to go to market remain well-positioned in many markets as a decade of rising house prices has provided them with a sizable equity buffer and homes continue to move rapidly.”

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As for mortgage rates, the average rate on a 30-year fixed-rate mortgage was 5.54% as of July 21, double the 2.78% rate a year earlier, Freddie Mac reported.

“The housing market remains subdued as mortgage rates edged up for a second straight week,” Freddie Mac chief economist Sam Khater said in a statement.

“Consumer concerns about rising interest rates, inflation and a potential recession are being reflected in weaker demand. As a result of these factors, we expect house price appreciation to moderate significantly.”

house price rise

According to the National Association of Realtors, the median existing-home sales price reached $416,000 in June, up 13.4% from a year earlier. This represents 124 consecutive months of year-over-year growth, the longest such streak on record.

So it’s no surprise that in 38 of the 50 largest U.S. metropolitan areas, renting in June costs less than buying a starter home, according to Realtor.com.

The median U.S. rent reached a record $1,876 in June (16th straight month). Monthly costs for a new home totaled $2,437, 30% more than rent.

“This is very different from earlier this year,” said Realtor.com economists Joel Burner and Hale. “When we did the same analysis in January, only 24 markets favoured renting.”

“The biggest driver was the surge in financing costs for home purchases in the first half of the year,” Berner and Hale said. The average 30-year fixed mortgage rate was 3.45% in January.

As a result, the housing market appears to be in trouble.

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