Gridlock in the housing market: Buyers are eager, but sellers are scarce

The housing market usually comes to life in the spring, when buyers show up in the warmer weather. This year, the market seems to be stuck in a deep freeze, and the biggest culprit is a lack of sellers, say housing experts.

There is interest among buyers – mortgage applications were up 10 per cent in March from the previous month – but the number of homes for sale is low. The mismatch is caused in part by homeowners who are inclined to sell but are sitting on the sidelines, scared off by the high prices and mortgage rates that they will face as buyers.

More than three-quarters of sellers in a recent Realtor.com survey said they felt “locked in”[ads1]; to their home by their own low mortgage rate. More than half said they planned to wait until prices fell before putting their homes on the market.

Sandy Robinson, a 71-year-old retired teacher in Fairhaven, Mass., is alarmed by the market. She would like to sell her two-bedroom townhouse but is worried about being able to afford a new home. “It’s a bit scary now and you have to be careful,” she said.

A deadlock has stuck in the housing market, as it should be more robust. Sales of existing homes in March were down 22 per cent from the previous year, according to the National Association of Realtors. The inventory of unsold homes on the market at the end of March was 2.6 months of supply, meaning it will take that long to sell them. Inventory is usually double that to balance supply and demand.

“We’re in a really tough situation,” said Robert Frick, corporate economist at Navy Federal Credit Union. “It’s going to be a complicated process to free the market and take a long time to get back to a normal supply and demand situation.”

Fewer homes for sale means more competition among buyers, leading to bidding wars and driving up prices. Although down from recent highs, the average price of a home is still about 40 percent higher than at the start of 2020, according to the S&P CoreLogic Case-Shiller index, which measures prices across the country.

“Everybody is a little surprised at the level of price stability,” said Todd Teta, chief product and technology officer for Attom Data Solutions, a real estate research firm.

Matt Berger would like to sell his three-bedroom starter home in Lebanon, Ohio, where he lives with his wife and two young children, but is holding back. “It feels tight now, and will only get tighter as the kids grow,” he said.

They want to move closer to Cincinnati, but homes they could afford a year ago are now out of their price range. The low mortgage rate on their current home adds to the pressure: “We’re in the middle of three” — about half the national average — “and I’d hate to have to say goodbye to that,” Berger said. 42.

“It’s a double whammy that the higher interest rates and home values ​​are so high, and it scares us,” he added. He and his wife hope that mortgage rates will drop and that they will find a cheaper home in a year or two, before their children are in school.

The average interest rate on the most popular mortgage, the 30-year fixed-rate mortgage, is 6.43 percent, Freddie Mac reported Thursday, more than double what it was two years ago. Mortgage rates peaked above 7 percent late last year, but the decline since then has been slow and uneven.

To get sellers more motivated again, interest rates need to fall to the “magic mortgage rate” of 5.5 percent, according to a survey by John Burns Research and Consulting. More than 70 percent of potential home buyers told the researchers they were unwilling to accept a mortgage above that price.

“Homeowners seem to be pretty patient right now,” said Maegan Sherlock, a senior research analyst at John Burns. “Until things get a little bit better, these people are going to hold out,” she added.

Most industry experts believe that the tipping point is still some way off. “This is going to be a transition year,” said Danielle Hale, chief economist at Realtor.com. “As we move into 2024, we should see more people with an appetite to buy.”

The market could also thaw as demand from frustrated buyers is met by homebuilders, who “historically have created first-time home and move-up opportunities,” said Attom’s Mr. Teta.

A lack of inventory of existing homes appears to be pushing buyers to newly built homes, a smaller market where sales have held up better. Sales of new single-family homes rose nearly 10 percent in March from the previous month, according to the Census Bureau.

The National Association of Realtors estimates that sales of new homes will increase by 4.5 percent this year and 12 percent in 2024. They expect sales of existing homes to fall by about 9 percent this year and then rebound in 2024.

And there are always reasons why reluctant homeowners can be forced to sell, such as job moves, downsizing or divorce, said Iliana Abella, managing director of sales at the Abella Group, a Miami realtor.

“If you plan to stay in your home for more than five years, 6 percent is not going to kill you,” she said of current interest rates.

Still, many homeowners are content to wait.

Ellen Goldman, a 72-year-old retired attorney in Naples, Fla., wants to downsize. She and her husband, Sam Savage, have lived in their two-story home since 2004, but realize the stairs will become more difficult as they age.

“We both work out and it’s not a problem,” Goldman said, adding that “we want to make the move now before it gets too difficult.”

But they are in no hurry. “We don’t have to do this,” she said, keeping an eye on local prices. “We would be nice to stay too.”