In a new blog post, Altos Research said it adjusted its housing forecast for the remainder of the year amid a slowdown in buyer demand and a lower-than-expected housing supply coming for sale.
In July, Altos said it forecasted that housing inventory levels would reach its 2022 peak of roughly 600,000 in late September before falling back to 535,000 to end the year.
Inventory levels have instead built up slower than expected – July peaked at 547,000 homes for sale – which prompted the research group to revise its end-of-year figure to 470,000. It also said inventory levels could potentially end even lower.
"Just a few years ago in 2019, the real estate market was healthy and functioning. We had nearly a million homes on the market," Michael Simonsen, founder and CEO of Altos Research, said. "We have fewer homes on the market now than we did early in the pandemic when home buyers were starting to go crazy with the low interest rates."
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Home prices remain high
The slower-than-anticipated pace of homes coming up for sale is playing a hand in keeping home prices up nationally. The National Association of Realtors® latest quarterly report showed that prices have continued to climb despite a slowdown in buyer demand. Of the 185 metro areas tracked by the trade group, 80% posted double-digit price gains in the second quarter of this year, up from 70% in the first quarter. Moreover, home prices for the median single-family existing home eclipsed $400,000 for the first time, rising 14.2% from one year ago to $413,500.
And Simonsen said that the lack of inventory means that listed homes are getting snapped up quickly. However, these homebuyers are seeing a slight discount in pricing. The percentage of homes that have had a recent price cut from their original listing is more than 40%, according to Altos.
"Overall the percentage with price reductions shows how this market is not tanking," Simonsen said. "It’s not tanking because there simply are so few homes on the market. Supply is just too low."
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Buyers also dealing with higher borrowing costs
Aside from the lack of inventory, higher mortgage rates have also made it increasingly harder for buyers to snag bargains, economists said.
Mortgage rates have nearly doubled from where they were this time last year, and it's likely that they will pass the 6% mark, according to Realtor.com. With higher home prices and borrowing rates hovering around 5.9%, buyers face an average monthly mortgage payment that is "nearly two-thirds, 63%, more expensive than the same time a year ago and more than three-quarters, 78%, more expensive than two years ago."
At the start of the summer, economic research reports indicated that a confluence of extra supply and less buyer demand could create opportunities for buyers, despite the already rising mortgage rate environment. Simonsen said he’s not as sure now that that remains the case. Investors are expecting to find bargains from sellers who are hurting, Simonsen said, but "sellers aren’t hurting."
"Higher mortgage rates combined with still-high home prices are making it challenging for homebuyers as we head into what historically has been the best time of the year to find a better deal," Realtor.com's senior economist George Ratiu, said. "Something has to give."
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