Making sense of a ‘weird’ housing market

Over the past two months, a reporter from Scotsman Guide has frequently encountered the term "weird" when discussing the housing market in the Seattle area. This sentiment was echoed by real estate agents during open houses that saw minimal attendance. One agent remarked, "It’s just a weird market right now," while another noted a condo unit listed at almost $100,000 above a comparable unit in the same building, despite having only minor upgrades. This agent expressed hope that the market would stabilize by spring, as she believes that buyers will eventually adapt to high interest rates and return to the market, fostering a better balance.

Recent data from Redfin, reported on October 14, indicates that in September, the number of home sellers surpassed buyers by a staggering 62.6%. This figure represents the largest imbalance recorded by Redfin since it began tracking data in 2013.

During a recent interview at the Mortgage Bankers Association’s annual conference in Chicago, Odeta Kushi, the deputy chief economist at First American Financial Corp., was asked to assess how unusual the current housing market is compared to historical trends. Kushi remarked that the current market is characterized by significant regional disparities. For instance, while Chicago is witnessing competitive bidding and a price increase of 5% to 6%, many markets in the Sun Belt are experiencing year-over-year price declines. She noted that the Northeast and Midwest are relatively strong, whereas the South and parts of the West are under pressure.

Kushi highlighted the ongoing slump in existing-home sales, which has persisted since 2022. Each time there seems to be a recovery, it quickly fades. She emphasized that this prolonged downturn has created a significant pent-up demand for housing.

When asked about the effects of pandemic-related distortions on the current fragmented housing landscape, Kushi acknowledged that some remnants of the pandemic market are still influencing prices. The markets experiencing declines were previously popular during the pandemic, but various factors, including decreased affordability and slowed domestic migration, have dampened demand. In contrast, regions like the Northeast did not see the same increase in housing supply in response to the pandemic, contributing to ongoing demand.

With mortgage refinancing demand declining steadily, Scotsman Guide inquired about who might qualify for refinancing in the current environment. Kushi indicated that only a small segment of homeowners who purchased at higher rates earlier in 2023 would be eligible for advantageous refinancing opportunities. The conversation then shifted to home equity lines of credit (HELOCs), with Kushi revealing that the total tappable equity in the market has exceeded $13 trillion for the first time since tracking began in 2005. Notably, 80% of this equity is locked in at lower rates than current market conditions.

During the MBA’s economic commentary event, economists discussed the Federal Reserve's potential actions, predicting a hold on rates in October, a possible hike in December, and another increase in the first quarter of the following year, with no further changes expected until 2027. Kushi agreed that the outlook for 2027 is uncertain, but noted that market participants anticipate a pause in rate changes to assess evolving economic data.

She expressed concern over the broader impact of rising energy prices on inflation, which could prompt the Fed to act if price increases extend beyond the energy sector. Kushi mentioned that the labor market's resilience provides the Fed with some leeway in addressing inflation concerns without immediate repercussions for employment.

In conclusion, the current housing market is marked by its peculiarities, with regional differences and a lingering impact from the pandemic era. As buyers and sellers navigate this landscape, the potential for shifts in interest rates and economic conditions will continue to shape the market's trajectory in the months ahead.