“US Housing Market Struggles as Home Inventory Hits Record Low Amid Rising Mortgage Rates”

The housing market in the United States is grappling with a severe shortage of available homes for sale, as the number of properties on the market plummeted to a record low in May, according to a recent report from real estate agency Redfin. The shortage, coupled with rising mortgage rates, has created a challenging environment for potential buyers and could have long-term implications for the housing market.

In May, the supply of homes for sale stood at 1.4 million on a seasonally adjusted basis, representing a staggering 7.1% decrease and marking the lowest level since 2012 when Redfin began tracking this data. Furthermore, this decline in inventory marked the first annual decrease in over a year, indicating a significant shift in the housing market dynamics.

Comparing the current figures to May 2019, prior to the disruption caused by the pandemic, the contrast is stark. The number of homes available for sale has decreased by 36.6%, with 800,000 fewer properties on the market. This downward trend signals a substantial scarcity of housing supply compared to the pre-pandemic levels.

The decline in new home listings is particularly concerning, as they experienced a 25.2% year-over-year drop, reaching the third-lowest level on record when adjusted for seasonal variations. The reluctance of both buyers and sellers to enter the market is attributed to the fear of assuming higher monthly mortgage payments.

Redfin’s report indicates that nearly every homeowner is burdened with a mortgage rate below 6%. In May, the average rate for a 30-year fixed mortgage was 6.43%, up from 5.23% a year earlier. Although the rate has slightly decreased to an average of 6.67% from the previous week, it remains significantly higher than the 5.81% average recorded a year ago.

The scarcity of available homes is a problem that predates the recent surge in mortgage rates. The aftermath of the Great Recession in 2008 saw a drop in home construction, leading to a shortage of inventory. The situation worsened in 2020 and 2021 when historically low mortgage rates prompted a surge in homebuying activity, further depleting the supply.

The shortage of homes has triggered intense bidding wars in certain areas, preventing prices from declining despite the decreased buyer demand. Remarkably, nearly 40% of homes sold in May fetched prices above their listing price, which is higher than usual for this time of year.

According to Redfin’s chief economist, Daryl Fairweather, it is premature to conclude that price declines have reached their lowest point. If mortgage rates continue to rise, as the Federal Reserve has indicated, it could hamper demand further and potentially cause prices to fall in the near term. However, Fairweather cautioned that when interest rates eventually decrease, many sidelined buyers could re-enter the market, potentially leading to increased bidding wars and offsetting the benefits of lower rates.

The housing market’s struggle with dwindling inventory and rising borrowing costs is likely to shape the trajectory of the market in the coming months. As buyers weigh the impact of mortgage rates on their affordability, the future of the housing market remains uncertain, with potential consequences for both buyers and sellers.