Pending home sales increased in December for the first time since May 2022, after six consecutive months of declines, the National Association of Realtors found. RBFRIED / GETTY IMAGES

Austin Business Journal reports, "since the start of the new year, there's indications buyers may be — albeit slowly — reentering the housing market, owing in part to mortgage rates that've stabilized since 2022's volatility.

Redfin Corp. (Nasdaq: RDFN) found while pending home sales fell 26% year over year during the four weeks ending Jan. 22, that was the smallest drop in more than three months, and that metric had began rising on a month-over-month basis since December.

Separately, home tours and requests for service for Redfin remain down 23% and 27% respectively from a year prior, but both are an improvement from a November trough of that activity being down 40%.

Pending home sales increased in December for the first time since May 2022, after six consecutive months of declines, the National Association of Realtors found. Its Pending Home Sales Index, which forecasts future home-sales activity based on contract signings, improved 2.5% in December, although pending transactions were down 33.8% year over year in December.

“This recent low point in home sales activity is likely over,” Lawrence Yun, NAR's chief economist, said in a statement accompanying the December data release. “Mortgage rates are the dominant factor driving home sales, and recent declines in rates are clearly helping to stabilize the market.”

On the new-build side, the National Association of Home Builders/Wells Fargo Housing Market Index, which measures homebuilder confidence, increased this month for the first time since December 2021. Some major builders, such as Arlington, Texas-based D.R. Horton Inc. (NYSE: DHI), have signaled they plan to increase their housing starts this spring in anticipation of more buyer demand.

To be sure, one month's worth of data isn't indicative of a major shift — and the NAHB/Wells Fargo index, at 35, is still low compared to historic standards. But economists, analysts and real estate agents are hoping a more typical spring housing market will take place this year.

"When you think about the housing sector itself, the long-term fundamentals are still there," said Maurice Austin, director at S&P Global, adding he thinks the recent slowdown is a blip. "The question is, how long does this slowdown in demand last?"

Economic factors in housing market

Beyond mortgage-rate movement, which priced out many buyers last spring and summer when they quickly ascended, on top of record-high home-price appreciation, Austin said the broader economy, and how deep of an economic recession could take place this year, will determine the trajectory of the housing market.

Brenda Tushaus, CEO of Eden Prairie, Minnesota-based Re/Max Results, said the latter half of 2022 saw a steady decline in homebuying activity in the market she leads, which includes 48 offices across Minnesota and Wisconsin.

She said she's anxious to see whether the spring selling season — which, for her area, begins around the Super Bowl — will return to pre-pandemic typical levels of activity.

"Now that (interest rates) have balanced out and inflation is starting to get under control, it’s slowly returning to normal, I think," Tushaus said. "That’s boosting consumer confidence."

Home inventory and bidding wars

Even with the threat of a recession hanging over the economy, she said people always need to buy and sell houses, and her area, like most across the U.S., remains inventory constrained. That's likely to persist, even if buyers reenter the housing market in the coming months, as 85% of mortgage holders in the U.S. today have a rate below the 6% being seen today, according to Redfin.

In fact, bidding wars have already come back in some markets, including Seattle and Tampa, Florida, Redfin found — that's starting to happen again the Greater Twin Cities market, too, where Tushaus is based. Within the lower price point of the housing market in her area — $350,000 and less for the Twin Cities — she said she's hearing of bidding wars nearly every day from agents she works with.

Daryl Fairweather, chief economist at Redfin, said the firm is seeing more demand than expected so far this year and, to her, it doesn’t seem to be a fluke.

"That doesn’t mean things couldn't change but it look stronger from a demand standpoint, and, usually, buyers react sooner than sellers," she added.

Homebuilder pipelines

In fact, The Goldman Sachs Group Inc. (NYSE: GS) in a note to investors this month said four housing markets — San Jose, California; Austin, Texas; Phoenix; and San Diego — are at risk of seeing home values plummet this year to levels akin to the 2008 housing crisis, the New York Post reported.

Despite the brakes applied to the U.S. housing market, with builders facing a rise in cancelation rates, higher incentives, price cuts and fewer starts, most companies in the homebuilding industry are in a strong financial position to weather the current rockiness, Austin said. Key lessons were learned out of the Great Recession in the late 2000s, including a shift from owning to optioning land, which most public builders tracked by S&P Global and others employ as a regular business practice.

"Instead of having 100% of their land on the balance sheet, they pay the option premium, maybe 3% to 10%, and when they need the land, they can go the land banker and draw down the land as needed," Austin said. "In the case of a slowing environment, as we’re seeing now, these homebuilders don’t have as much land on their balance sheet as they did previously."

Some builders have chosen to walk away from those options in the recent slowing environment if they're unable to renegotiate, Austin continued.

Those who work in or track the residential real estate market also point to demographics as a reason why buying activity isn't likely to be stymied forever.

Fairweather said there are a lot of people on the margin, waiting to get into the market once mortgage rates drop, even a little bit. As the Federal Reserve continues to scale back its policy tightening, she said she expects buying activity will continue to increase.

"If you look back at the pandemic boom and the frenzy of the spring market of 2021, there were 50 offers on every home," Tushaus said. "If you think about it, for those 50 offers on that one home, there (are) 49 losers. Those people are still out there. They still need or want to buy. They may have pulled out because they lost faith, but now they’re starting to creep back as they start to see things stabilize.""


Source: Austin Business Journal

Written by: Ashley Fahey

Published: January 30, 2023

Posted by Grossman & Jones Group on


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