The pace of home sales has declined to its slowest pace since the beginning of the pandemic, but buyers are slowly starting to search for homes again.
According to a new report from Redfin, the typical home sold during the four weeks ending January 8 was on the market for 44 days, the longest period since April 2020.
The slowdown resulted in the largest YOY inventory increase in Redfin’s data history.
Pending home sales fell by 32% YOY to their lowest recorded level, while mortgage purchase applications dipped to their lowest point since 2014.
But early signs of demand like online home searches and tour requests are increasing.
Redfin’s Homebuyer Demand Index rose by 6% as buyers watch interest rates moderate. Buyers can now save $250 on monthly housing payments thanks to the decline in rates from over 7% in early Q4 2022 to 6.33%.
Easing inflation may also be bolstering buyer sentiment.
“We’re entering 2023 with positive economic news: The latest consumer price index report confirms that the worst of inflation is behind us. That means the Fed is likely to continue easing its interest-rate increases, which should cause mortgage rates to continue gradually declining. This could bring back some homebuyers in the coming months,” said Redfin Deputy Chief Economist Taylor Marr.
The Federal Reserve is expected to raise interest rates one or two more times, and those hikes may be a quarter point.
Consumer sentiment towards the housing market is slightly more optimistic now than in previous months.
Buyers seem to be looking around to what deals may be available to them.
“We’ve already seen an uptick in people initiating home searches,” Marr said. “Although those house hunters haven’t yet turned into buyers, they may soon given that monthly mortgage payments are notably down from their peak and the latest inflation and employment data lower the chances of a recession.”
Analysts largely still expect to see a mild recession this year, however. UBS chief economist for the US, Jonathan Pingle, recently said he doesn’t believe a soft landing is possible for the economy.
He says investors heartened by recent data suggesting the economy is softening failed to take into account rising credit card debt, falling house prices, and higher borrowing costs.
“We were in the soft landing camp for most of last year, but the path to that unfolding has narrowed considerably with the data coming since September,” he said.
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