Housing’s scarce supply derails buyers at key time for US deals

THE housing market is trying to find its footing as the key spring home-sales season kicks off in the US. For shoppers, their chances of winning a deal depends on where they’re looking.

More homebuyers signed contracts in February compared to a month earlier and a slight dip in borrowing costs is providing some relief. But transactions remain hobbled by a shortage of listings and an affordability crisis that is only beginning to ease. Now, the market is grappling with the fallout from regional-bank failures and how it might affect interest rates and consumer confidence.

It won’t be an easy time for either side of a home deal. House hunters are scarce in Las Vegas and Austin, Texas. In the New York and Boston suburbs, there’s plenty of demand, but little on the market. And in the San Francisco Bay area, the banking turmoil has scared off purchasers.

Whether factors bolstering demand — buyers’ desires to seize on the dip in borrowing costs, or a need for more space — win out against the headwinds will play out in the coming weeks.

“The biggest challenge ultimately is not mortgage rates, it’s inventory,” said Mark Fleming, chief economist at First American Financial. “Where are we going to find the houses?”

Cooling the housing market after the red-hot pandemic boom is part of the Federal Reserve’s tricky calculus as it navigates taming inflation with interest-rate hikes while trying to prevent a recession. Prices in much of the country are softening, with the S&P CoreLogic Case-Shiller index showing a 3 per cent decline from its record high in June. But a dearth of new listings is keeping values from falling too far — a situation that may change in the event of a recession.

A NEWSLETTER FOR YOU

Tuesday, 12 pm

Property Insights

Get an exclusive analysis of real estate and property news in Singapore and beyond.

Sign Up

Across the country, new listings of homes for sale tumbled 22 per cent from a year earlier in the four weeks through Mar 19, one of the biggest declines since the housing market ground to a halt early in the pandemic, Redfin reported last week. Most existing mortgages in the US have rates below 4 per cent, and 40 per cent of loans were originated during the buying frenzy of 2020 and 2021, when rates were hovering around record lows, according to Black Knight. That means current owners have little incentive to move and take on higher loan costs.

In Rochester, in upstate New York, properties get listed and vanish within days in a pileup of buyers, many arriving from more-expensive markets around the Northeast. Gina Dilal, a local nurse, is trying to buy a first home with her boyfriend, an engineer. They’ve lost out on four houses in the past three weeks.

Working with an agent, Kelly Roche, they offered to pay as much as US$240,000 for the first one they bid on: a three-bedroom house with wood shingles, listed for US$178,000, that Dilal described as nothing special. It received 32 offers, and the six bids that beat the couple out were all cash, she said. Last week, they offered up to US$40,000 above asking on another house, and still no luck.

“I don’t know if it should add to our urgency to buy — or to back off,” she said. “The longer the process goes on and the more we see what’s going on with the banks, it does make me nervous.”

In Austin, a centre of the pandemic boom, sellers are under pressure to lower prices or risk having their listings go stale, said Eric Bramlett, a local broker. Pending sales of previously owned homes in the metro area were the lowest for the year-to-date March period in at least five years and 20 per cent below 2019’s level, he said.

The spring, traditionally prime time for both buying and selling, looks weaker so far than it has in years across the US. Higher mortgage rates are largely to blame. While contracts for home sales ticked up last month from January, pending sales on a seasonally adjusted basis haven’t been this low in February since 2009, according to data from the National Association of Realtors.

More recent data from Redfin showed annual declines in contracts for all 50 of the most populous areas the brokerage tracks. For the four weeks through Mar 19, deals dropped 54 per cent in Las Vegas; almost 50 per cent in Sacramento, California; and 47 per cent in Seattle and Portland, Oregon.

Sellers are also facing competition from homebuilders that are aggressively cutting prices to pull buyers into sales offices. With US resale properties in such short supply, new homes now account for 30 per cent of housing inventory, more than twice normal levels, said Ali Wolf, chief economist for Zonda.

All the discounting is creating a solid value proposition to buy new, she said. Sales per community have been surging east of Texas, and even the relatively sluggish West is improving.

“Builders found the market and the consumers showed up,” Wolf said.

The financial tumult brought on by the collapse of California’s Silicon Valley Bank has helped reduce mortgage rates as investors bet that the Fed may slow its pace of rate hikes. The average rate for a 30-year fixed loan was 6.32 per cent, according to Freddie Mac data released on Thursday (Mar 30). It had reached about 7 per cent before the crisis unfolded this month.

First American’s Fleming expects rates to hover between 6 per cent and 7 per cent. The good news is that tight supply would keep prices from crashing, and if they keep dropping, demand will start to pick up in weak markets, boosting sales, he said.

Given how rate-sensitive the market has been recently, 30-year loans falling to 6 per cent and staying there might be enough to create conditions for a stronger season, barring a deep recession or more-extreme job losses, said Zillow chief economist Skylar Olsen. That could help boost loan applications for home purchases, a measure that’s inched up from a 28-year low in recent weeks.

“If recent months have taught us anything, it’s that we shouldn’t count on a smooth path for mortgage rates in either direction,” she said.

For buyers with more money to spend, higher rates are just the new normal. In Connecticut, newlyweds Kim Leung and her husband, Chris, had to offer 20 per cent over the US$459,000 list price of a three-bedroom West Hartford house to beat out other bidders.  

“We didn’t want to put things on hold for two years, three years,” Leung said. “We had to do what was right for our family.”

In Orlando, Florida, TV news producer Katrina Scales and her boyfriend finally gave up after bidding on 16 properties. A US$188,000 three-bedroom condo they’d looked at two years ago recently came back on the market for nearly US$100,000 more, she said.

“It’s disappointing,” Scales said. “I don’t see a path for us to buy anytime soon.” BLOOMBERG