U.S. housing faces longer descent to basement

By
A home for sale sign hangs in front of a house in Oakton, Virginia March 27, 2014.

NEW YORK, Nov 22 (Reuters Breakingviews) - The U.S. housing market is destined to keep sliding. The highest mortgage rates in 15 years have stifled demand, leading the pace of existing home sales to slow 31% since January. An influx of new supply should depress prices from pandemic-era highs, but affordability will be squeezed well into 2023.

Hot markets are cooling off. House prices in Phoenix, for example, have fallen 8% since June, per S&P CoreLogic Case-Shiller data. The national average has dipped only 1.5% over the same span, however, and sits 13% higher than a year ago.

Some fresh inventory is appearing, with new home supply rising to 462,000 in October, according to the latest Census Bureau report. Such additions should help bring prices down, but not enough to swing the equilibrium.

Pricey loans are spooking buyers. The average 30-year mortgage costs 6.6%, more than twice what it did in January, ballooning this year’s typical monthly mortgage payment to $2,300 from $1,500. And even though economists broadly expect the U.S. Federal Reserve to slow the rate of interest rate hikes, government-backed mortgage buyer Freddie Mac reckons that U.S. home loans will cost about 6.4% through 2023.

Homebuilder D.R. Horton (DHI.N), whose stock price has recovered a bit lately but is down 24% in 2022, warned earlier this month that its bottom line would suffer because of discounts used to attract wary buyers. Rival Beazer Homes USA offered a similar outlook, with boss Allan Merrill saying increased incentives would offset gains from lower material costs.

With existing owners locked into lower mortgage rates, they’re unlikely to put their homes up for sale, curbing supply. Builders are also changing their plans to capitalize on renters putting off buying a house. Apartment construction has accelerated 11% year-to-date, while new single-family home construction has slowed 26%.

The median new U.S. home sold for about $471,000 in September. For a buyer to keep mortgage payments at $1,500 a month after paying 20% upfront and borrowing the rest for 30 years at 6.4%, the price would have to drop 36%. It’s a crude calculation, but it nevertheless points the market in a clear direction.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

CONTEXT NEWS

Sales of existing U.S. homes slowed to a seasonally adjusted annual rate of 4.4 million units in October, according to data released on Nov. 17 by the National Association of Realtors. The median selling price for previously owned homes rose 6.6% from a year earlier, easing from the previous month’s 8% year-over-year gain.

Housing starts for single-family homes decelerated to a seasonally adjusted annual rate of 855,000 units in October, the Census Bureau said on Nov. 18. Starts for homes in buildings of five apartments or more eased to a rate of 556,000 units.

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

Editing by Jeffrey Goldfarb and Sharon Lam

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