This year, existing homeowners are choosing to stay in their homes, while prospective buyers are grappling with consistently high housing costs. The housing market is facing challenges with tight inventory, leading to multi-decade lows in home sales.
For those deeply connected to the real estate market, the signs of turmoil are evident. A monthly report by Alignable reveals that in November, 45% of real estate agents who own their firms struggled to pay rent on their offices. This represents a 5% increase from October and a 10% increase from September.
The challenges don’t come as a surprise to Corey Burr, senior vice president at TTR Sotheby’s International Realty, who attributes the difficulties to recent interest rate hikes. The Federal Reserve’s prolonged period of low-interest rates, followed by rapid increases, has, in Burr’s view, frozen the residential real estate market and caused significant distortions.
Realtor sales are particularly slow, impacting both large and small brokerages. Smaller brokerages with fewer assets are finding it challenging to weather the storm created by the current real estate cycle. Burr, drawing on his 36 years of experience in the industry, notes that the present situation is especially tough for smaller businesses.
Prospective buyers, concerned about high mortgage rates, are backing out of deals, contributing to extremely sluggish home sales over the past year. Pending home sales in October were down 1.5% from September and 8.5% from the previous year, marking the lowest figure since the National Association of Realtors began tracking the statistic, even worse than during the 2008 financial crisis.
Burr anticipates a contraction in the number of realtors across North America, citing data that over 60,000 agents left the industry in the six months leading up to May.
While mortgage rates have been decreasing in recent weeks, they haven’t reached a level low enough to motivate homeowners with previously locked-in rates of 2% to 3% to sell their homes. Burr expects a slow period between early November and early January but anticipates a potential uptick in the spring if mortgage rates continue to decline.
As inflation subsides, there’s speculation that the Fed’s tightening cycle may conclude, with the possibility of rate cuts in 2024. This could lead to lower mortgage rates, offering relief to the housing market. Some analysts, including NAR chief economist Lawrence Yun, predict that mortgage rates could hover between 6% to 7% next spring, with a potential 13.5% increase in home sales in 2024.