With eyes on the Federal Reserve’s meeting scheduled for June 14, the housing market wades through its beleaguered situation. Upon the release of this year’s Fortune 500 list, it’s not surprising that real estate companies such as Rocket Companies, Zillow, Compass, and Anywhere Realestate fell out of favor.
The Federal Reserve’s raising of rates have led to a 30-year fixed mortgage rate at 7.05%, a substantial rise from the 3.22% mortgage rate in early 2022. This high interest percentage deters home owners from putting houses on the market, as they would trade a lower rate for a new higher one. Currently, the median sales price is $436,800 based on first quarter data for 2023, presenting a 32% increase from the $329,000 median in 2022.
Housing supply is shrinking as companies shy away at an opportunity to build homes in the current economy. The Federal Reserve Bank of St. Louis has reported that there were 582,382 units available in May 2023. That is 288,558 units less than the 870,940 units for sale in June 2020. With few houses and a failing office sector dropping commercial real estate values, there’s competitive demand for homes available thus keeping prices higher.
Demand keeping prices high
As work-from-home becomes the “new normal,” people are moving from metropolitan areas opting for residential homes. In census reports from 2021 and 2022, there were 142,953 more people leaving Los Angeles than moving in. 2022 also counted as many as 64,577 residents moving out of New York to find homes elsewhere. These moves allow for the low residential housing supply to stay in high demand. This demand keeps prices high for those who can afford a move during tight monetary policy.
Influence from oil production changes
Saudi Arabia announced they would lower oil production rates by 1 million barrels a day. Not only should consumers expect rising prices at the pumps and grocery isles, but home builders will see material prices increasing to cover shipping expenses. With building supply prices increasing, residential real estate availability is liable to stay low.
Everyone awaits what’s to come in the FED’s meeting later this month. If interest rates rise again this summer, it’s probable that home prices could drop giving into pulls for affordability. A market dip dealing a blow to investors and sellers in the residential sector.