Home prices are soaring, with the median price for existing homes climbing 15% in March from a year earlier to $375,000.
That’s the highest level since the National Association of Realtors (NAR) began tracking the data in 1999.
If home prices keep rising and demand for homes remain strong, the Federal Reserve may have to raise interest rates even further, according to Bloomberg.
“They [Fed officials] are not going to get the decline in economic activity through housing that they typically get, at least not as quickly as they typically get it,” Mark Zandi, chief economist for Moody’s Analytics, told Bloomberg. “They may have to press on the brakes even harder.”
Sales Decline
To be sure, there are already signs that the housing market is cooling. The rising prices, combined with surging mortgage rates, helped push existing home sales down 2.7% in March from February and down 4.5% from a year ago.
As for mortgage rates, the 30-year fixed-rate averaged 4.17% in March, up from 3.76% in February, according to mortgage agency Freddie Mac.
And that rate has continued to climb since then, averaging 5.1% in the week ended April 28. That’s down just slightly from the prior week’s 12-year high of 5.11%. The rate was 2.98% a year ago.
“The combination of swift home price growth and the fastest mortgage rate increase in over 40 years is finally affecting purchase demand,” Sam Khater, Freddie Mac’s chief economist, said in a statement.
Pending Home Sales Drop
In another sign of weak demand for homes, the National Association of Realtors’ Pending Home Sales Index fell 1.2% in March, the fifth monthly drop in a row. Pending sales, which are measured for existing homes, slid 8.2% from a year earlier.
A sale is pending when the contract has been signed but the transaction hasn’t closed. The sale is usually finalized within one or two months of signing. So pending sales are a good indicator for actual future sales.
"The falling contract signings are implying that multiple offers will soon dissipate and be replaced by much calmer and normalized market conditions," Lawrence Yun, the NAR's chief economist said in a statement.
Meanwhile, those who own their homes have made out quite well over the past two years, thanks to exploding prices. People in that category have seen their wealth gain $6 trillion excluding rental properties, according to The New York Times, citing a Federal Reserve study.
