How large was the correction in the US housing market during 2022’s rapid run-up in mortgage rates?
Pretty large, according to a new Redfin analysis, which covered the period from the June price peak through year-end.
Although the drop from record highs appears minuscule on a longer-term chart illustrating the total value of US residential real estate, the ostensible “blip” sums to $2.3 trillion, Redfin calculated.
That marked the biggest June-to-December decline since the subprime bubble burst.
On a December-to-December basis, price growth was 6.5%, still healthy, but nowhere near the 20% rate observed at the height of the pandemic boom.
Recall that 12-month price growth for existing US homes is on the brink of turning negative. If prices do go into reverse on a YoY basis, it’d break what, as of January, was a 131-month streak, according to NAR.
Redfin’s data shows the median price of a home in the US was down nearly 12% from the highs last May, to $383,249 as of January. NAR’s figures, illustrated above, put the median at $359,000.
The good news, according to Redfin, is that “most homeowners will still reap big rewards from the pandemic housing boom.” The bad news is that in order to be a homeowner who “reaps big rewards,” you need to own a home.
As it turns out, owning a house is a prerequisite for membership in the “homeowner” club, something you might not know given our tendency to describe every American family as a “house”hold.
As Redfin’s research lead put it, in an article published this week, “Unfortunately, a lot of people… couldn’t afford to buy homes even when mortgage rates hit rock-bottom, which means they missed out on a significant wealth building opportunity.”
Imagine that. It’s almost as if the main issue with housing affordability is that houses are too expensive, not that financing costs are too onerous.
Still, rates do matter, of course. When you’re on the affordability fence, 50bps makes a big difference. Last week, for example, purchase applications fell to the lowest since 1995, according to the MBA, which blamed the renewed rise in mortgage rates for the drop.
“This time of the year is typically when purchase activity ramps up, but over the past two weeks, rates have increased significantly as financial markets digest data on inflation cooling at a slower pace than expected,” MBA’s VP and deputy chief economist Joel Kan remarked.
“The increase in mortgages rates has put many homebuyers back on the sidelines once again, especially first-time homebuyers who are most sensitive to affordability challenges and the impact of higher rates,” Kan went on.
Meanwhile, Wells Fargo cut “hundreds” of additional mortgage jobs this week consistent, I suppose, with the bank’s “new strategic direction.”
In one of the more creative PR efforts I’ve seen this cycle, the bank said in a statement that facilitating a “more focused” approach entails “displacements” in the home lending business.
