Declining Home Sales - Beyond the Headlines

Are home sales declining because of interest rate hikes, or is something else going on?

Leave it to the media to sensationalize the best part about the economy – housing. The headlines right now are dramatic. The news reports of a housing market in crisis. We are in a shift but far from a crisis. If you live in a “hot neighborhood” then you can still get top dollar for your home!

The housing market accounts for 18% of GDP, a BIG portion of the economy. Housing markets throughout the country vary from neighborhood to neighborhood. The current housing market is so hyper local that the housing market happening in Whitefish Bay is not the same market taking place in even Fox Point, and we see that throughout the country. It is neighborhood to neighborhood and block to block.

The profit on a typical home sale in 2021 was just over $94,000, an increase of 45% from the profit in 2020 and a 71% increase from, pre-pandemic profits. About 42% of homeowners were considered equity rich at the end of 2021. The amount of tappable equity (equity above 20% usually required by lenders to back a mortgage) grew by 2.6 trillion last year to a record total of 9.9 trillion dollars (source: CNBC).

Home Sales, the number of units sold, are declining throughout the country, but that is currently mostly due to low housing inventory rates, not declining prices (not rising rates?). At least not yet! The current decline is due to a very low number of houses available for sale. If we just look at our local perspective on inventory rates, it explains part of the story. Mequon New Listing inventory is down 32% over September of 2021 and Milwaukee’s North Shore New Listing inventory is down 22% over September 2021. 2021 was a very “hot” housing market and we are currently even below those inventory levels. So, you can see, a large portion of the downturn in sales is actually due to a lack of available houses and not necessarily a decline in prices. We are now just beginning to see an uptick on days on market and a longer lag time due to uncertainty in some markets. Showing activity locally has dropped off over seasonal highs by almost 31% and I predict this is likely due to rate hikes. Strong rate increases will impact housing and slow down sales with certainty and has impacted showing activity, BUT for high demand areas, the trend may not see declines in demand or a decline in list price for what housing remains available.

Declining Demand Drives Price Pullback (Nationwide Report by MLS)

• The recent housing market slowdown has been disproportionately due to a pullback in demand and not an increase in supply. In fact, supply — as measured by new for-sale listings — decreased compared to a year ago, which is atypical in slowing markets.
• Over the last twelve months, active demand — as measured by the number of people actively shopping for a home — has fallen by an estimated 30%.
• While overall for-sale inventory has risen, a low flow of new listings entering the market and the enduring strength of outstanding mortgages offer some support to otherwise falling prices.

Mortgage Rates Rise to Twenty Year High

• Mortgage rates pressed higher again this week, reaching 20-year highs as markets digested economic developments on both sides of the Atlantic.
• Enduring turmoil surrounding British fiscal policy continues to concern investors, and UK bonds pressed higher again this week as a result. The subsequent reaction by US Treasuries – which tend to influence mortgage rate movements – wasn’t as pronounced as it has been in recent weeks, but the confusion was still enough to place more upward pressure on mortgage rates.
• Also influencing rates this week was another strong reading on the labor market. While the September jobs report showed hiring activity continued its gradual cool down, the main takeaways still compared favorably to expectations and historic norms.

The Bottom line for Milwaukee is that we have a steep decline in inventory. Buyer demand is softening in some markets due to rate hikes. Hot Neighborhoods remain hot and in high demand. For now, the housing market here is relatively stable. We will see a shift towards buyers favor as we move through 2023. If you are thinking of selling your Milwaukee area home, get out there early at the first of the year for the best appreciation left in the best housing market in recorded history. Feel free to call me for any questions or help, Suzanne Powers 414-870-7175.