Real Estate Rundown November 2023

Photo credit Benjamin Disinger via Unsplash

New Construction Most Attractive to Buyers 

A notable trend in the U.S. housing market is newly built homes accounting for a growing portion of available properties, reaching a record 30.6% of single-family homes for sale in the third quarter. This shift is attributed to a combination of increased homebuilding activity and a decrease in existing homeowners putting their properties on the market, due to rising mortgage rates. These surging rates may keep some potential buyers from purchasing, but those who enter the market are increasingly drawn to new construction homes. Builders are offering incentives like mortgage rate buydowns to attract buyers and reduce inventory, resulting in a 12.3% increase in purchases of new single-family homes in September. However, the recent spike in mortgage rates may slow down new home construction. This has created competition between sellers and homebuilders, as builders can offer high concessions that will allow buyers to cover various cost and buy down their mortgage rate.

Mortgage Rates Remain At 23 Year High 

Mortgage rates experienced a slight dip this week but remained close to the 23-year high, according to Orphe Divounguy a senior macroeconomist at Zillow Home Loans. Economic growth continues to defy expectations. Despite stronger-than-expected retail sales reflecting a resilient U.S. consumer, there is an underlying concern about the potential for increased consumer price growth. Factors such as upside inflation risk and growing government borrowing are driving bond yields higher and leading to elevated mortgage rates. However, the rapid tightening of financial conditions is expected to slow economic activity, especially in interest-rate sensitive sectors. This in turn could temper the rise in mortgage rates. The upcoming Personal Consumption Expenditures release is anticipated to further have an impact on mortgage rate trends.

Decline in Mortgage Applications 

According to the latest Weekly Mortgage Applications Survey by the Mortgage Bankers Associations, there has been a significant 6.9% decline in U.S. mortgage applications. The drop is reflected in the Market Composite Index, which also reflects a 6.9% decrease on a seasonally adjusted basis compared to a previous week. The Refinance Index decreased by 10% in the same time frame. The 30-year fixed mortgage rate remains at 7.70% contributing to the recent decrease in purchase and refinance applications. As a result, applications were 21% lower than the same period the previous year. Refinance activity has hit its lowest level since early 2023 due to limited incentive with mortgage rates being the highest in decades.

Home Prices Still On The Rise

In the 20 largest metropolitan areas of the United States, home prices have continued their upward trajectory for the sixth consecutive month. This is highlighting the persistence shortage of available homes for sale. According to the S&P CoreLogic Case-Shiller 20-city house price index, home prices increase 1% in August compared to the previous month. On a year-over-year basis, home prices in these major markets nationwide rose by 2.2%. Markets like Chicago, New York, and Detroit have seen larger increase closer to 5 percent. The western regions, particularly Las Vegas and Phoenix, saw declining home prices. As homeowners remain reluctant to sell. The housing market is expected to grapple with a shortage of available properties, causing home prices to continue to climb. Until the supply catches up with demand, significant changes in home prices are unlikely in the near future. Unless broader economic factors or higher rates emerge, the report suggests a positive outlook for future housing market results.

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