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Ready to Buy a House? Just Wait a Few Weeks

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The housing market has changed in the last few weeks. We’re probably looking at a cooling-off period that’s not a hassle, but both possibilities lead to the same conclusion for potential homebuyers.

It makes more sense to wait to see how loose the market is, rather than rushing right now with the first signs of improvement. Purchase terms may be more favorable in a month or two than they are today.

It was the mortgage rates that ultimately broke the fever. Their relentless rise has reached a level that changes the behavior of buyers. Earlier this month, 30-year mortgage rates rose to their highest levels since 2009. Mortgage purchase applications have fallen to their lowest levels since 2018. Inventories of unsold single-family homes are well below pre-pandemic levels, but are now year-over-year, according to Altos Research.

This still seems to be a manageable change for homebuilders. Luxury homebuilder Tall Brothers reported last week that it made strong profits. They said in a conference call that the recent easing of demand looks similar to the seasonal fluctuations experienced before the pandemic. Their customers deposited a non-refundable deposit of $ 75,000 at the time of ordering. This is far from the low deposit days of the housing bubble in the mid-2000s. Therefore, the May cancellation rate is not significantly different from the 1% rate they had. In the previous quarter.

They are also trying to rebuild inventories so that when customers come looking for a home, the wait is historically closer to 9-10 months instead of last 15 months. A gentle slowdown that allows builders to focus on completing existing orders and replenishing inventory is fine for them.

For those considering buying, there are three reasons to wait. The first is to end the strongest seasonal period of the year. Even in the normal housing market, housing supply is expected to increase and prices are expected to level off in the coming months. In general, if you can’t find what you want by Memorial Day, there’s no reason to rush to buy a place.

Second, the market is softening for the first time since the pandemic. A month from now, more homes will be on sale than they are today. The percentage of homes that are cutting prices is still below normal, but is rising rapidly. If the economy is experiencing a soft landing rather than a hard landing, equity investors may regret waiting for a purchase, but housing is slow and different dynamic. Whether it’s a soft landing or a hard landing, you’ll have some time to wait to see which one you’re going to be.

The third reason is that long-term interest rates have actually fallen in recent weeks and are just beginning to appear in mortgage rates, as the economy as a whole is showing signs of weakening. Mortgage rates have fallen to their lowest levels in a month this week. As the economy continues to deteriorate, conversations about mortgage rates can change from reaching 6% to below 5%.

My view of the housing market is that rebalancing, which I knew was needed at the end of the year, is underway. Inventories have risen from historically lows to near normal. Price increases should level off for some time. Perhaps there will be a slight decline in the fastest growing markets. But over-trend employment and wage growth should prevent things from becoming too extreme. And as markets become more confident that the Federal Reserve can curb inflation, it’s quite possible that mortgage rates will fall further from current levels.

The conditions may not work exactly as I would expect, but it still makes sense for homebuyers to wait for the image to be sharper. Economically sensitive stocks will skyrocket prior to economic stability, but the housing market is not. There have been many changes in the last three months, and even bigger differences can occur in the next month or two.

More from other writers in the Bloomberg Opinion:

Adjustable Mortgage Rush Not Same As 2008: Alexis Leondis

Real Estate Long Covid Focuses on Core Inflation: John Authers

Bright red house prices freeze low-income earners: Jonathan Levin

This column does not necessarily reflect the views of the editorial board or Bloomberg LP and its owners.

ConorSen is a columnist at Bloomberg Opinion. He is the founder of Peachtree Creek Investments and may have invested in the areas he is writing.

More stories like this are available at Bloomberg.com/opinion

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