As housing interest rates continue to reach record highs, signs of change have recently begun to appear in the real estate market. First, due to the impact of high housing interest rates, inquiries from buyers about properties for sale are clearly decreasing. Not only has the number of buyers visiting open houses decreased noticeably, but the market is becoming tight as visitors to most open houses are mainly just exploring the market atmosphere rather than actual buyers.
Recently, Redfin is diagnosing the current real estate market with the term ‘Rock Bottom’, which represents the worst condition. High interest rates are driving buyers out of the market, and homeowners are unable to give up the satisfaction of low interest rates they are already enjoying. As a result, the housing market is in its worst state, with total housing transactions plummeting by more than 35% compared to normal times due to a lack of properties for sale. The Associated Press recently reported that transaction volume has plummeted due to the high interest rates that began to rise in earnest in the second half of last year, affecting approximately 3.4 million jobs.
A cold wind is blowing not only among agents and loan-related workers who have been hit the hardest, but also across all real estate-related industries. Considering that each real estate transaction creates work for about 20 related industries, including escrow, title, loan, termite, and remodeling, the 35% decrease in housing transaction volume is currently dealing a severe blow to the related industry.
Reflecting this trend of decreasing transaction volume, the number of experts predicting a decline in housing prices has been increasing recently. The housing interest rate, which has already exceeded 7%, is adding to the uncertainty in the market as claims are raised everywhere that the base interest rate may not fall for a considerable period. In addition, as we enter the winter season, which is the seasonal off-season, transaction volume is expected to decrease further than now, and this anxiety is expected to reach its peak this winter.
According to a recent report by Altos Research, which provides various real estate-related data, the number of sellers lowering their prices from the initial listing price has increased by 37%. This figure is higher than the usual price cut figure and can be seen as a sign that real estate prices may fall in the future. Redfin also announced in its monthly report last September that sellers had lowered prices for about 6.5% of the total housing inventory to sell it quickly.
Reflecting this market situation, sellers are also realizing that expectations for multiple offers, which were very fun during the pandemic, are gradually disappearing. In addition, sellers who have been responding steadfastly to price cuts are increasing in number as they enter the fall season.
Suppliers of new homes also believe that high interest rates can last for a long time, so rather than raising the sale price, they are moving to reducing the square footage and maintaining the current sale price or setting a lower price. Just like when labor and material costs rose due to inflation during the pandemic, product manufacturers adjusted the price by reducing the number or quantity of products in the package or lowering the quality to account for the increase that was not yet reflected in the price increase.
The problem is that if the high interest rates, which are causing pain to both sellers and buyers, continue for a considerable period, it will clearly lead to a recession not only in the housing market but also in the U.S. economy. If the situation is difficult for a while, we will endure it, but if it continues for a long time, there will be significant changes in the housing market.
Despite this, buyers who are still in the market should not overlook the fact that now may be an opportunity to purchase. What we must not forget is that the housing shortage caused by the subprime crisis is a fundamental problem in the U.S. real estate market that has not been completely resolved and may resurface at any time. If housing interest rates go down, there is a high possibility that the supply shortage will recur, and if that happens, the housing market may rebound again, and buyers may have a difficult time finding properties for sale again due to a shortage of properties. It is becoming clear that the buyer’s time is getting closer and closer.