Market watchers warned it was coming. But February’s NETAR Home Sales Report was still a shock to some. After a steady diet of sales gains for a decade, seeing “sales were flat” is so foreign to some locals that it raised eyebrows.
Just how flat remains to be seen.
Despite the geopolitical chaos, inflation uncertainty, and stock market gyrations, there’s a chance sales will gain a toe-hold as we get into the prime home buying and selling season. That’s especially true if investors flee the market and buy U.S. Treasury bonds. That would be more short-term relief on interest rates in what is shaping up to be a volatile housing market in the coming months.
There’s little chance we will see growth like it was during the past several years for a simple reason. There’s not enough inventory to support it. But it would be a mistake to ignore the growth coming out of the ground. All three of the region’s major markets see a wave of new inventory coming.
One of the biggest headwinds is the possibility that new home, townhomes, build-to-rent properties, and multi-family developments get stuck in the building phase. There’s also a fledgling increase in the share of homeowners are warming up to selling in the upcoming months. That’s understandable because many think we are at or near the sellers’ market’s peak.
Home sales are a function of inventory, and while there isn’t much of that, the dip in mortgage rates has increased the urgency to buy before they get back on the increasing track. By the time this column is published, there will be another weekly fixed rate mortgage average. It comes on the heels of a decline for two weeks in a row. That gave buyers a little extra buying power to leverage against higher prices. However, FED Chairman Jerome Powell has offered an unusual preview of anticipated policy action. He says he will recommend a quarter-point interest rate increase when the FED meets later this month. While the central bank does not set mortgage rates, its actions often influence them.
Politics aside, here’s the rule of thumb to consider. A 1% change in interest rates equals a 13.2% increase in home prices. While it’s likely that interest rates will increase by a point – or a little more – it won’t come overnight. The top-end of the current forecasts for a fourth-quarter average is 4% by the Mortgage Bankers’ Ass., RealtyTrac and Kiplinger. The National Association of Realtors®’ forecast is 3.7%.
Currently, the region has barely a month’s inventory of homes for sale. Some city and major submarkets have a half month, or less, inventory. At the same time, new pending sales outnumber new listings, so there’s little if any inventory growth. It’s hard to get a precise handle on how much the new pending sales vs. new listings ratio affects active inventory because some of it is lost in a fast-moving market. But it’s early. March is typically when more listings come to market for the spring and summer seasons.
Data hawks are watching the median listing price vs. the sales prices. February’s typical listing price was up 11% from January. But the typical sales price was almost 18% below list. That doesn’t mean Facebook posts about over-list sales are hype. But it does show there’s some negotiating at play.
The best advice for sellers and buyers is to bore down on the local market information. It’s dynamic and may not look like what you read about home sales or prices in the mass media reports.
NETAR is the largest trade association in the Northeast Tennessee, Southwest Virginia region representing over 1,500 members and 100 affiliates involved in all aspects of the residential and commercial real estate industries.