After six months into the year, a potential energy is building in the housing market, with buyers seemingly on the sidelines waiting for interest rates to come back down.
The expected “gloom and doom” of the Fresno housing market never came, says J.P. Shamshoian, president of Realty Concepts.
When Federal Reserve officers raised interest rates in 2022, they did so hoping to dam the flash flood low interest rates had created in the housing market. When rates doubled in a matter of months, many expected a housing crash.
Throughout most of the year, home prices only fell 2%, said J.P. Shamshoian. Shamshoian is president of Realty Concepts. Even though housing costs have gone up, demand has kept pace, Shamshoian said.
June is the first month of 2023 housing prices have seen gains. The median-selling price for a home in Fresno County is $420,000, compared to $410,000 in June 2022. This is the first month the median selling price has climbed above last year.
“So for all the doom and gloom about housing, prices have held up remarkably well, especially considering how much interest rates have gone up. That really goes to show you how much of an appetite there is for housing.”
Interest Rates Keeping People Where They Are
However, transactions have slowed significantly, Shamshoian said.
The number of homes sold in Fresno County has dropped 26.3% for the year, from 4,763 to 3,511 from January to May. Homes the first six months of the year are spending twice as long on the market. In June 2022, it only took an average of 17 days to find a buyer. It’s now taking 35 days, and that number is down from 42 in May and 47 in April.
Unless somebody needs to sell, there isn’t much incentive for people with low mortgage rates to do so. People otherwise looking to upgrade are looking at the cost of money right now, Shamshoian said.
But that doesn’t mean there aren’t buyers. The average home is still getting four or five offers, Shamshoian said. Most homes are selling at or just above the list price.
With little competition, sellers have a distinct advantage.
“It’s a great time to sell a house if you’ve got one, because the fact of the matter is not very many other people are selling,” Shamshoian said.
Zillow Report Shows U.S. is 4.3 Million Homes Short
While builders added 6.3 million housing units from 2015 to 2021, the number of families living in the U.S. grew by 7.9 million, according to Zillow.
In 2021, there were 8 million households — either individuals or families — living with non-relatives as renters, according to the study. With only 3.7 million housing units available for rent or sale, that leaves a deficit of 4.3 million.
A majority — 68% — of the families doubling up with homeowners were making less than $35,000. The report called for smaller, more affordable, entry-level homes built.
New York and Los Angeles had the biggest housing shortfalls at 376,000 and 334,000 homes needed, respectively. Fresno’s is short 15,000 homes, according to Zillow.
Drop in Interest Rates Could Ignite Home Price Rocket. Again.
Real estate entrepreneur and “Shark Tank” star Barbara Corcoran doesn’t think interest rates will stay where they are forever. Once they drop, the number of buyers entering the market could push housing prices up 20%, she predicted.
For interest rates to come back down, the Federal Reserve will have to see significant cooling across the entire economy, Shamshoian said. Fed officials make monetary decisions with 2% inflation as their target. But with full employment and inflation still above target, interest rates will likely stay where they are.
Shamshoian said while “it’s more fun” to sell housing at lower rates, he says the current interest rates are better for the long-term housing market.
“The more mature part of me hopes that they stay, you know, somewhere close to where they are, which by the way, this is where interest rates normally kind of land,” Shamshoian said.
He would like to see rates come back down to 5% to 5.5%.
“But frankly, I hope that I never see another 2.5% interest rate, because it’ll mean there’s something fundamentally wrong with the housing market,” Shamshoian said.