Ivy Zelman is a financial analyst with a reputation for delivering bad news, especially when it comes to housing. The CEO of Zelman and Associates, nicknamed “Poison Ivy” because he accurately called the 2008 housing crisis, is looking ahead to the current market and sees no recovery for months, if not years, to come.
“Existing home sales are probably at their lowest levels since the global financial crisis,” she said in a recent interview on CNBC, referring to the Great Financial Crisis. She added that she sees existing home sales remaining at “very low levels” through 2025. In other words, housing activity, at least on the existing home side of the market, will remain largely frozen as homeowners hold on to their homes amid the prospect of rising prices. – Mortgage rates for a longer period.
Data doesn’t lie
The latest numbers from the National Association of Realtors support this toxic criticism. Data released Tuesday morning show that existing home sales fell 4.1% in October from the previous month, and 14.6% from a year earlier, to a seasonally adjusted annual rate of 3.79 million.
This is the lowest pace since 2010 (in line with existing home sales in September), when the housing market was reeling from the effects of the global financial crisis. However, there’s only one thing that can change that, Zelman says: mortgage rates.
“We need a further fall in interest rates to revive the existing house market,” she said, pointing to the impact of lockdown which has prevented homeowners from selling their homes for fear of missing out on a below-market mortgage interest rate for a price potentially paying £8. % or at least above 7%. According to its estimates, more than 80% of homeowners have a mortgage interest rate of less than 5%, and about half of them have a mortgage interest rate of less than 4%. Other estimates vary, but Goldman Sachs recently noted that 98% of borrowers are getting below-market interest rates – and that was before interest rates reached just over 8%. Not to mention, nearly 40% of Americans owned their homes outright as of last year, an all-time high according to Bloomberg — so you can understand why supply is in short supply, and why existing home sales are at a 13-year low.
Where are the mortgage rates?
However, it is unclear whether we will see a further decline in mortgage interest rates, with analysts and investment banks’ forecasts varying. Some suggest mortgage interest rates will stay high for longer, but they have fallen for weeks after reaching 8% in the wake of lower-than-expected inflation reports. Many economists expect the Federal Reserve to cut interest rates in the coming months, which will likely push the 30-year fixed mortgage rate lower, but we are unlikely to ever return to the pandemic lows — which is partly why… The emergence of home building companies, and the market for building new homes has outperformed the market for existing homes.
“Builders have had more flexible sales, and I think part of that is that they really provide great value to the consumer by giving mortgage interest rate reductions,” Zelman said. “They offer incentives and they have a product, and while they offer that incentive and that can impact profit margins, they have a product where [there is] Increasing request [and] There is not a lot of current inventory.
It is not clear when the housing shortage will end on its own, especially as the impact of the lockdown continues to restrict supply. However, housing will remain largely unaffordable. The latest figures from NAR showed there was just over three months of supply of homes, and the median sales price of existing homes rose 3.4% from a year earlier, making it the fourth straight month of year-over-year price increases.
“In terms of affordability and providing more affordable housing, without any government support, developers cannot identify the revenues to provide enough needed housing,” Zalman said. “The multifamily market is currently seeing a slowdown in rentals due to too much supply coming into the market,” and that should provide some relief.
“This is a tough time right now,” she concluded, a sharp contrast to the pandemic housing boom.