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James Lane PostOct. 13, 2023
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Despite a dip in 2022, it looks like home prices have remained resilient in larger cities. Lack of inventory appears to be the biggest driver of prices, despite mortgage rates discouraging home sales and challenging potential home buyers.
Sykes’ Latest Commentary:
- Real estate is hyper-local, so in certain geographies, we are seeing continued shortages whereas in others we are seeing price reductions and new inventory coming on the market. It’s true that many are locked into low mortgages and don’t want to move into a higher loan rate, thus negatively impacting affordability, but we are seeing movement in locations that typically serve as second and third homes, like coastal and mountain vacation communities, especially with cash buyers who are scooping up properties that had been sitting for 6+ months.
- Real estate data lags significantly compared to other financial metrics, and this is because a home is not recorded as ’sold’ for 1-3 months (minimum) after the transaction was even agreed upon… and for new construction, it could be years between contract and close. So, the readings that we are currently getting are actually data points from early summer. Real-time metrics show that home sales continue to show depressed levels with just 59,000 pending national sales last week and growing levels of inventory with this week also showing the largest pop so far this year with 9,000 SFH coming on the market.
- Time flies, but it was this time last year when we really started to see the market slow down. As an active agent in 5 luxury markets I was openly discussing the slowed transaction volume when it became evident in 2022, however, it took 6+ months for national data to show the slowdown and even longer than that for most agents to stop riding the inventory shortage narrative. The change that we are seeing today is mostly a shift in mindset around mortgage rates. Throughout 2023 there was a mindset that rates may hit 7% but then come back down. Now, we are discussing the potential for 8% rates and the likelihood of a ‘higher for longer’ Fed mentality. Counterintuitively, this actually has people shopping again, as today’s rates don’t seem too bad in comparison to the future potential rates… I’ve seen my personal transaction volume double over the last month.
- Additionally, we are looking at a potential OVER supply of multifamily products in markets like Austin, Charlotte, Raleigh, Nashville, and Denver per Goldman Sachs. This situation is also caused by a lag in market data. The conversation has consistently been about a shortage of housing but many missed the nuance of needs versus wants. We are short of single-family homes based on current demand, but not short of housing needs in general. We overcorrected with multifamily and this caused a fallout moving forward, especially when combined with the issues in commercial real estate and potential building conversions.
Erin Sykes is a Chief Economist and Real Estate Wealth Advisor at Nest Seekers International. Sykes directs data and analytics teams in New York, London, Palm Beach, and the Hamptons. She is a frequent guest on Fox Business News, CNBC, Today, CNN, NBC Nightly News, Yahoo! Finance, Cheddar, and more. She holds an MBA from Pepperdine University and a Bachelor in Finance and International Business from Villanova University.