Home sales have been on the decline since April of 2022, when President Biden's economy took a sharp turn to the south, and interest rates jumped on a rocket northward. At one point, we even hit rates in the 8-percent range, some of the highest ever recorded. That, in turn, has caused a massive drop in home sales that is approaching a two-year mark.
From September to October of this year, pending home sales dropped 1.5-percent, and have hit the lowest level since the metric began tracking in 2001. That is right, the pending home sales are now at lower levels than even the great housing bubble bust of 2008.
Ronnie Matthews, President of the Great American Title Company, says the rates themselves play a role. But it is more the shock and awe.
"Most of my career...rates in the low sevens have been the average rate. But it is the shock of going from 2.5-percent to 8-percent so quickly...a large amount of the younger generation has never seen rates like these," he says.
It has resulted in scaring off young home buyers, including the author of this article. Why get yourself locked into a massive interest rate, and overpay, when you can wait it out?
Sales have dropped 8.5-percent from October of last year. There is also a shortage of homes on the markets, especially in the starter home realm. But there is another non-discussed factor.
"There is a large increase in institutional buyers...back in 2008, they came in and bought houses at cheap rates, and they have continued to buy," he says. "Roughly 5-percent of homes in America are owned by institutional buyers. They are not buying high priced homes; they are buying those starter homes up."
Rates have cooled slightly from the massive surge to 8-percent and are currently hovering around 7.3-percent. Still not great, but at least on a brief downswing. However, the Fed has noted that they may not be done with rate hikes yet going into 2024.
If you have dreams too of those days of 3-percent rates, just stay asleep.
"We will not see the sub-four percent interest rates ever again," Matthews says.
But there is a roadway to some recovery.
"If we can get into that 6-percent range and stay there...I think that allows people to have a few years to save, and allows them to make a move," he says. "The market starts with first time home buyers."
Matthews says new home construction ramping back up is another factor that could help reverse the trend.