MAY IS TRADITIONALLY one of the best months to sell a house in America. But this year it could prove disappointing. Applications for mortgages to buy homes have fallen by 8% compared with a year ago, according to the Mortgage Bankers Association (MBA), a trade organisation. The number of houses on the market, meanwhile, increased by 8.9% between February and April, reckons Realtor.com, a property website. Some fret that the recent slowdown in America’s red-hot property market could be a sign of an imminent crash. In fact, the market is just returning to normal after a pandemic-driven boom. House prices are expected to keep rising for some time yet.
Those rising prices, coupled with soaring mortgage rates, are beginning to cool demand. Average home prices in America have increased by 15.9% in the past year, according to the US Census Bureau. Since the start of the pandemic, prices are up by nearly a third. After reaching record lows at the start of 2021, mortgage rates are now rising at their fastest pace in decades. The interest rate on a 30-year fixed-rate mortgage is now 5.3%, according to Freddie Mac, a government-sponsored mortgage-loan buyer, up from 3.1% in December 2021. At this rate, a borrower with a $450,000 mortgage would pay about $2,500 a month, up from about $1,920 at the end of last year, an increase of 30%.
The drop in affordability has soured appetite. A recent survey by Gallup, a pollster, found that just 30% of Americans think it is a good time to buy a house, the lowest share since the firm began asking the question in 1978. Young people are especially downbeat. Among those aged 18 to 34, just 25% say it is a good time to buy. While some new homebuyers are being priced out, others are turning to adjustable-rate mortgages, which are cheaper in the short term but carry the risk of higher repayments in future. Such loans now account for 10.8% of home-loan applications, according to the MBA, the largest share since 2008.
Home prices are expected to climb further this year, thanks to low inventories and high demand from millennial buyers. CoreLogic, a property-data firm, reckons that prices will rise by 5% over the next 12 months. Zillow, a property-listings website, has pencilled in an increase of 15%. Even if prices fall, most economists agree that a crash like the one that took place in 2007 is unlikely, thanks to healthier household balance sheets and stricter lending standards. Sellers may lament the cooling of the housing market. But as stratospheric prices fall back to earth and supplies recover from historic lows, the market may finally be returning to normal. ■
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