“All of this points to a broader weakness in the housing market”: Buyers are officially spooked by rising interest rates, but don’t expect a housing crash.

All of this points to a broader weakness in the real estate market’: buyers are officially scared due to rising interest rates single do not expect a real estate accident

The US real estate sector is running out of steam amid rising rates, scaring off some would-be homebuyers, according to multiple reports.

The housing sector has been red hot for months amid more than two years of the COVID-19 pandemic, with skyrocketing prices prompting some economists to express concern about overvalued markets. But with rising rates, the market is finally cooling off, and some buyers say they’re putting off plans to buy a home for up to 6 to 12 months.

In fact, about half of buyers were hitting the pause button on their plans to buy a home, choosing to wait six to 12 months before restarting the process, according to a survey of 900 realtors by tech startup HomeLight real estate.

Some 35% of real estate agents, who have generally been bullish on the housing market during the pandemic, reported seeing buyers abandon the market entirely amid higher rates.

Meanwhile, mortgage applications have fallen to lowest level in 22 years, according to recent data from the Mortgage Bankers Association. Refinancing and purchases have dropped considerably.

‘Does this mean we are going to see a collapse like we saw 15 years ago or so? I’d probably say no, in part because revenue is strong and there’s still a shortage of inventory.


— Michael Neal, senior research associate at the Urban Institute

“All of this points to broader weakness in the housing market,” said Michael Neal, senior research associate in the Housing Finance Policy Center at the Urban Institute, a Washington, DC-based think tank.

“Does this mean that we are going to see a collapse like we saw 15 years ago or so?” she added. “I would probably say no, in part because revenue is strong and there is still a shortage of inventory.”

The National Association of Realtors reported that sales of existing homes fell in April for the third consecutive month, by 2.4%.

New single-family home sales fell 16.6% in April from the previous month, according to the United States Department of Housing and Urban Development.

Both data points show that “we are seeing declines in sales on both sides of the market, which I think can be attributed to higher interest rates as well as higher prices,” Neal said.

Another not insignificant challenge on the horizon: financial stability concerns are also rising: 16% of consumers surveyed said they expected to lose their job in the next 12 months.

Consequently, house prices have started to rebalance.

CoreLogic expects annual home price appreciation to slow to 5.6% by April 2023, communicated on June 7. Compare that to the 21% annual increase in house prices in April 2022.

But would-be homebuyers are feeling the pain with mortgage rates rising so rapidly, even though the market is cooling off. Some 79% of prospective homebuyers surveyed by Fannie Mae said they I feel like it’s a bad time to buy a housewhile 70% expect rates to rise over the next year.

Another not insignificant challenge on the horizon: financial stability concerns are also rising: 16% of consumers surveyed said they expected to lose their job in the next 12 months.

The Fannie Mae survey also noted that slightly more respondents expect home prices to rise next year.

Write to: aarthi@marketwatch.com

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