Newsletter for June 20, 2023

Greetings, future homebuyers!

The longest day of the year has come to kick off summer (June 21, for those keeping track of daylight hours), but does that mean there is light at the end of the real estate tunnel? 

Let’s find out what’s happening with the housing market. 

Latest U.S. Mortgage Rates 2023-06-15

• 30-year fixed: 6.69% (previous week: 6.71%)
• 15-year fixed: 6.10% (previous week: 6.07%)
• 30-year FHA index: 6.620% (previous week: 6.645%)
• 30-year fixed rate Jumbo: 7.202% (previous week: 7.124%)

Stay informed with Homefinity about rate fluctuations that could impact your loan decision.

Firms pulling back from U.S. housing market

Despite the rise in national home values, institutional investors are also becoming cautious about the residential market.

For example, Starwood Capital (an institutional firm with approximately $115B in assets) has decided to withdraw from the U.S. housing market, as evidenced by the decision to sell over 2,000 single-family rentals. Starwood CEO Barry Sternlicht has criticized the Federal Reserve’s aggressive interest rate hikes, which have negatively impacted the real estate sector. 

An analysis by John Burns Research and Consulting revealed that institutional investors purchased 90% fewer homes in January and February compared to the same period in 2022. 

Number of homes for sale still falling

According to a recent housing market update from Redfin, during the four weeks ending June 11, the total number of U.S. homes for sale fell by 6% compared to the previous year, marking this the largest decline in 13 months. 

New listings dropped by 23%, extending a 10-month streak of double-digit decreases. The post-pandemic inventory shortage has left 39% fewer homes available than in June 2018.

This inventory crunch results from a combination of a decade-long homebuilding slump and fluctuating mortgage rates. Record-low mortgage rates during 2020-2021 fueled a homebuying boom, depleting inventory. When rates began to rise in 2022, potential sellers hesitated, further exacerbating the inventory shortage.

Pending home sales have decreased by 17% YoY, but demand remains strong. Mortgage-purchase applications increased by 8% last week, and Redfin’s Homebuyer Demand Index is near its highest level in a year. This pent-up demand will likely trigger a surge in buying once more homes become available. Despite the imbalance in supply and demand, median sale prices have only dipped by 1.1%.

NZ market turmoil shows what rising interest rates can do

According to a recent New York Times article, New Zealand’s housing market is in turmoil, with property prices plunging nearly 18% since November 2021 due to high interest rates. The crisis has taken center stage ahead of the national elections this year.

During the pandemic, low mortgage rates and relaxed lending rules caused house prices to skyrocket by almost 50%. However, since the central bank began aggressively tightening rates to combat inflation, prices have nosedived, wiping out over $6 billion in household wealth. Home sales reached a record low, and properties now linger on the market for an average of 47 days.

New Zealand’s housing shortage was further exacerbated by storms and flooding that damaged thousands of homes on North Island. The country’s housing issues affect everyone, from those waiting for public housing to affluent individuals who invested in property and are now seeing their investments drop in value.

Housing affordability is a significant concern, with the median price at NZD 780,000 ($480,000 USD) compared to around $407,000 in the United States. High housing costs contribute to inequality and poverty, as many people live paycheck to paycheck.

The problem has persisted despite attempts by various governments to fix it. Most New Zealanders own a home, and 57% of household wealth comprises land and houses. Property investing is a widespread hobby in the country, mainly because there’s no capital gains tax.