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More signs point to softer housing market, even as mortgage rates fall

A real estate agent readies a house for viewing in Venice, Calif.

Anne Cusack | Los Angeles Times | Getty Images

Homebuilders and buyers alike are pulling back, even as mortgage rates fall to multiyear lows. The housing market is simply too pricey, and consumers are starting to worry about the economy and their personal finances.

Just 12% of adults said they plan to buy a home in the next year, according to a survey done in the second quarter of this year by the National Organization of Home Builders. That is down from 14% in 2018.

“The drop marks the third consecutive year-over-year decline in the share of adults thinking about buying a home, providing further evidence of a slowdown in the housing market, as potential buyers are held back by the lowest levels of affordability in a decade,” wrote Rose Quint, NAHB’s assistant vice president for survey research.

The price squeeze is showing up also in who is planning to buy. Among prospective homebuyers, 58% were first-timers this year, compared with 63% last year. First-time buyers usually have less wiggle room in their wallets, and home prices are rising fastest on the lower end of the market.

Homebuilders are also not helping. The supply of newly built homes for sale fell 1% in the second quarter, the first annual drop in six years, according to Redfin, a real estate brokerage. Prices for newly built homes have moderated, after 7 straight years of increases, but sales are up less than 1% annually.

“The moderation we’re seeing in new-home prices was expected and follows right along with our observation late last year that builders were finally shifting their focus toward offering smaller, more affordable homes,” said Redfin chief economist Daryl Fairweather. “While this change was a clear and long-needed response to homebuyer demand and tastes amid an affordability crisis and a softening market, it also means that builders are now focused on homes that are less profitable for them.”

That is why builders are not increasing the supply of these homes. They are also facing rising costs of construction, thanks to more tariffs and an unrelenting labor shortage.

Lower mortgage rates could help on the margins, but the reason behind those lower rates, namely growing fear of a recession in the U.S. economy, outweighs the benefit on a consumer’s balance sheet. Buying a home is an incredibly emotional experience, and potential buyers will often pull back when they have the slightest fear of losing their jobs or losing any income.

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