Inventory decline fuels July housing squeeze.

Inventory decline fuels July housing squeeze.

The Squeeze in the Housing Market: A Challenging Landscape for Buyers and Sellers

Housing Market

The housing market is experiencing a squeeze, as multiple factors converge to create a challenging landscape for both buyers and sellers. Recent data from’s Monthly Housing Trends Report sheds light on the various elements contributing to this pressure.

Declining Housing Prices in July

July saw a modest dip in housing prices, with a year-over-year decrease of 0.9%. In June, median prices fell from $449,000 to $445,000. This subtle decline continues into July, with median prices dropping to $440,000 from $443,900 the previous year.

While this price drop may seem promising for potential homebuyers, it is important to consider other factors that could derail a purchase.

Inventory Crunch and Rising Mortgage Rates

The primary challenge in the current housing market is the shrinking inventory. Active listings, including homes under contract, have declined by 9.1% compared to the previous year. This inventory crunch has persisted for three consecutive months.

The Federal Reserve has been gradually raising interest rates since March 2022, resulting in a target range of 5.25% to 5.50% for the federal funds rate. The higher rate environment acts as a deterrent for both sellers and buyers.

Homeowners with interest rates over 5% are twice as likely to plan on selling their homes. However, those who secured low rates between 2% to 4% from 2020 to early 2022 are now reluctant to budge. Prospective buyers willing to accept an average 30-year fixed mortgage rate of nearly 7% are likely to face fierce competition for the limited number of homes available.

Tighter Lending Standards and Longer Days on the Market

Banks have tightened lending standards across all categories of residential real estate compared to a year ago, according to the Federal Reserve’s quarterly Opinion Survey on Bank Lending Practices. This tightening is particularly evident for loans other than government-sponsored enterprise (GSE)-eligible and government loans. Additionally, consumer demand has weakened for all residential real estate loans. Banks also reported tighter standards and falling demand for home equity lines of credit (HELOCs).

These factors collectively result in fewer people qualifying for mortgages through traditional banks, which could deter potential buyers. Moreover, houses are sitting on the market for a longer duration. In July, the average time a home was up for sale increased to 45 days, up from 34 days in July 2022.

The Squeeze: Challenges for Buyers and Sellers

The current state of the housing market poses challenges for both buyers and sellers. Potential buyers need to navigate hurdles such as limited inventory, stricter lending standards, and higher borrowing costs. Simultaneously, sellers may have to settle for a lower interest rate, witness their inventory remaining on the market for longer periods, and receive slightly less for their properties.

In conclusion, on the heels of the latest rate hike by the Federal Reserve, the housing market appears equally challenging for both buyers and sellers. The convergence of factors, including an inventory crunch, higher lending standards, and rising mortgage rates, has created a squeeze in the housing market, making it a tough landscape for those looking to buy or sell a home.

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