Selling Prices Decline for the First Time in Three Years
Author: Javier Collado
Source: El Periódico

The COVID-19 pandemic and the various lockdowns imposed by governments increased housing prices everywhere. The aspiration to improve one’s living conditions in anticipation of another possible domestic lockdown drove up prices. In the United States, the number of newly built homes sold skyrocketed in the months following the worst of the pandemic, reaching up to 6.7 million homes sold in a single month. However, a slowdown in this variable and other indicators is beginning to reveal a significant change in the U.S. real estate market, which some are already calling a “recession.”

The number of newly built homes sold in July dropped by 5.9% compared to June and by 20.2% compared to the same period last year. According to the National Association of Realtors (NAR), sales fell from 6.03 million homes in July 2021 to 4.81 million last month. This brings the figure back to pre-pandemic levels, losing the 5 million mark for the first time in two years.

For newly constructed homes, the decline has been even more pronounced, with 511,000 homes sold in July—a level not seen since 2016. In fact, at the worst point of the COVID-19 crisis, sales of such properties were at 582,000.

Additionally, for the first time in nearly three years, the average selling price has decreased. According to the specialized analysis firm Black Knight, the cost of a home fell by 0.77% in July compared to the previous month. Not only is this a rare occurrence in the last three years, but it also represents the largest monthly price decline since January 2011 and the second-worst July in three decades. The average price now stands at $403,800, according to the NAR report. However, it is still a 10% increase compared to a year ago.

“It is likely that there will be more price corrections on the horizon as we move into what are typically more neutral seasonal months for the real estate market,” said Black Knight’s Vice President of Research and Strategy, Andy Walden, to CNBC, emphasizing that we are at a “turning point in the market.”

Families with Less Margin
It seems that the Federal Reserve’s interest rate hikes—from a range of 0-0.25% to 2.25-2.5% in just five months—have pushed mortgage rates to levels that are seriously impacting the ability of American families to purchase a home. The interest rate on a 30-year mortgage currently stands slightly above 5%, although it reached 5.8% a few months ago. These are the highest levels seen since 2008.

This increase in mortgage rates has raised the percentage of income that a family must allocate to mortgage payments, which is now at a 30-year high. According to Black Knight, households are now required to spend 32.7% of their monthly income on a 30-year mortgage (assuming a 20% down payment). This is 13 percentage points higher than before the pandemic.

Meanwhile, the inventory of unsold newly built homes increased in July to 1.31 million, a 4.8% rise from the previous month.

“We are witnessing a housing recession in terms of declining home sales and housing construction. However, it is not a recession in home prices. Inventory remains scarce, and prices continue to rise nationally,” says Lawrence Yun, Chief Economist at NAR.