Jul 28, 2022 - Economy

The housing slowdown is here

Illustration of a real estate sale sign shaped like a downward point arrow

Illustration: Annelise Capossela/Axios

The housing slowdown we've been anticipating for months is here.

The big picture: Home sales are slowing down, and some of the pandemic era's hottest "Zoomtowns" — sleepy areas where remote workers pushed up real-estate prices — are already seeing price drops.

Why it matters: The idea of a real estate downturn might seem scary, especially if you lived through the last one. But with home prices at record highs, this was a market overdue for cooling off.

What's happening: "Activity in the housing sector has weakened," is how Fed Chair Jerome Powell put it Wednesday, at a press conference announcing another 0.75 percentage point rate hike.

  • Contract signings for home purchases, or deals signed but not yet closed, fell 8.6% in June from a month ago, the National Association of Realtors reported yesterday. That was well above what economists were predicting, and a 20% drop from last year.
  • It was also the slowest pace since September 2011 — except for the first two months of the pandemic, notes CNBC.
  • Meanwhile, mortgage applications are at their lowest level of activity since February 2000.
U.S. mortgage application index
Data: Mortgage Bankers Association; Chart: Nicki Camberg/Axios

What's next: Prices are coming down in some pockets, and analysts expect that to continue.

  • 20% of builders lowered prices on new homes in July, according to survey data from housing market research firm Zonda.
  • "Some of the metro areas that attracted out-of-state buyers early in the housing boom are cooling off the fastest," writes Nicole Friedman in the WSJ. Boise, Denver, Salt Lake City and Tacoma, Wash. all saw the most price cuts in June, according to Redfin data she cites.

What they're saying: "Activity is now in free-fall, inventory is rocketing, and prices have started to fall," Ian Shepherdson, chief economist at Pantheon said in a note. He's been calling this slowdown for a while.

  • This wasn't a blip: "We can expect continued downturn as we head into the second half of the year," said George Ratiu, senior economist & manager of economic research at Realtor.com.

Zoom out: This is how the real world is reacting to what's happening at the Fed — mortgage rates jumped, and suddenly houses were even less affordable. Though people would like to buy, they cannot.

  • You could say that the Fed "crushed demand" for homes, except people still really want homes. The U.S. is suffering from a long-term housing shortage.

"The challenge in the housing market is that many Americans so desperately still want to own a home," Ali Wolf, chief economist at Zonda, said in a message to Axios. "But rising home prices and higher interest rates have pushed them to the limit."

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