David Dworkin, CEO of the National Housing Conference, emphasized Monday that the current slowdown is “nothing like the latest housing crisis,” arguing that “all the major fundamentals are very different.”
“The law of supply and demand is never repealed, so we have a very different situation where instead of a demand-driven crisis, we’ve had a supply-driven crisis that has sent home values and house prices soaring.” Dworkin told “Cavuto: Coast to Coast.”
He noted that in 2008 the market was “fueled by toxic mortgages and people were getting interest rates on a teaser basis that they couldn’t possibly repay.”
For months, the housing market was boosted by record-low interest rates, as US homebuyers – awash with stimulus money and eager for more space during the pandemic – flocked to the suburbs.
CANCELLATIONS HOME SALES RISE TO ANOTHER 2 YEARS HIGH AS BUYERS WITHDRAW
But the rate-sensitive sector is beginning to cool significantly as the Federal Reserve tightens its policy at its fastest pace in three decades to contain ongoing inflation.
Policymakers have already approved two consecutive 75 basis point rate hikes in June and July and confirmed that another super-large hike is on the table in September.
After the rate hikes, the average interest rate on a 30-year fixed mortgage — the most popular among new homeowners — rose to nearly 6% in June, though they have moderated since then. According to recent data from mortgage lender Freddie Mac, the average rate for a 30-year fixed-rate mortgage hovered around 5.55% for the week ending August 25.
That is considerably higher than a year ago, when the interest rate was still 2.86%.
Coupled with high home prices, the rapid rise in borrowing costs has pushed many entry-level home buyers out of the market.
A recent report from Redfin showed that home sales cancellations rose to a new two-year high in July as buyers pulled out of the market. In July, about 63,000 home purchase agreements were canceled, equivalent to 16% of homes that went on sale that month.
“We’re definitely looking at a slower period, but we still have a lot of need there, and housing affordability is the worst it’s been in most people’s lives,” Dworkin noted.
Earlier this month, it was revealed that the national average price of an existing single-family home rose 14.2% annually to $413,500, surpassing $400,000 for the first time, according to the National Association of Realtors.
“In markets where you’re going to have constant demand — Florida might be one of them — then you’re going to see a much smoother recession effect, which I think is what we’re really dealing with here,” Dworkin told Monday. host Neil Cavuto.
“And you’ll also see that in a lot of markets that haven’t seen a huge increase, but that were pretty normal, you’ll see them largely that way.”
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“In the most bloated markets, you’ll see prices fall, but I think because the demand is so high and the supply is so short, we’re still going to have a muted reaction,” he continued.
“That’s a real problem for Chairman Powell because one of the ways he keeps inflation in check is by raising rates and if supply doesn’t match demand then the big tool in his toolbox is definitely dulled. “
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