From Barrons:
Home Sellers Are Dropping Prices, but Buyers Aren’t Budging. What Could Change That.
The number of homes listed for sale this spring has jumped, but as costs remain prohibitive, buyers aren’t returning with the same enthusiasm. A recession could change that by pushing prices lower in some parts of the U.S.
The disconnect can be seen to differing degrees across the U.S. In Dallas, where inventory is “starting to pile up,” more buyers are calling off their searches and choosing to wait, says Texas Re/Max agent Todd Luong. In New Jersey, one of the most competitive states for residential real estate, homes remain in high demand—but sellers aren’t seeing the frenzy they’re used to, says Michael Read, a Morristown-based mortgage lender and real estate agent. “Buyers aren’t as excited as they might have been in the past,” he says.
Nationally, existing-home sales are down 2.4% through April despite a 5.1% gain in the number of properties for sale, says National Association of Realtors senior economist Nadia Evangelou. Costs are an issue: “The market is seeing a recovery in listings, but demand remains soft due to affordability constraints,” she says.
Home prices rose roughly 40% in the first 2½ years of the pandemic—and a relatively short supply boosted them further even as mortgage rates raced to their highest levels in decades. Mortgage rates’ volatile moves since then—like the sharp swing toward 7% after Moody’s downgraded its rating on U.S. sovereign debt —haven’t helped.
The housing market is already shifting out of sellers’ favor, but buyers aren’t quite in the driver’s seat, either. Sellers expect the sky-high prices of 2021, while buyers want the burst-housing-bubble deals of 2011, says Leo Pareja, the CEO of eXp Realty. Neither expectation is a sure thing. Nationally, sellers cut prices on nearly one in five listings last month, a larger share than any April since at least 2017, according to Realtor.com. (News Corp, which owns Barron’s, also owns Realtor.com operator Move.)
That imbalance is working its way into the market through price cuts—a notable shift in a housing market that has broadly favored sellers for the past several years. “It’s going to become a buyer’s market,” says Ivy Zelman, executive vice president and co-founder of housing analytics firm Zelman & Associates.
A recession could change the equation more quickly. Recession odds have fallen precipitously in the wake of the China-U.S. trade agreement, with J.P. Morgan revising its call on the likelihood of a recession to less than 50% from 60%. The agreement has put a pause on the harshest possible outcomes—but the effects of the new levies have yet to fully play out in the economy.
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Forecasts for home prices nationally are already flirting with declines. Zillow expects home values to drop 1.4% this year as more sellers entered the market than buyers. Susan Wachter, a professor of real estate at the University of Pennsylvania’s Wharton School, expects that nominal home prices could range from flat to up 2% this year—and that is without a recession.
