Real Estate Update: Inventory Squeeze Cools Mortgages

Mortgage application volume dropped by 7.2% last week, a drop that the Mortgage Bankers Association is attributing to intense competition among buyers for a relatively small number of units available. 

Across the nation, applications for mortgages for purchasing homes specifically declined by 11% over the week, which represented a total drop of 20% year-over-year. 

This development comes in spite of an increase in homes that were made available in December. December 2023 was the second month in a row to see an annual increase in inventory growth. The report also notes a 9.1% annual increase in newly-listed homes, as well as a year-over-year increase in the total number of unsold homes and pending listings of 3.6%. 

The National Association of Homebuilders reports that it estimates a 5.5% increase in single-family unit construction for the whole of 2024. 

The builders are adding new units just as quickly as they possibly can, but the resale market has flagged as current homeowners locked-in on their properties, to maintain their current interest rates; according to the National Association of Realtors, nationwide sales of existing homes declined 1% in December from the previous month, which represented a 6.2% annual drop from December 2022. Even as new homes come on the market, they can’t make up the difference from the resale market.

Here in Huntsville, market activity slowed to a glacial pace in mid-January. The figures released by the Huntsville Area Association of Realtors (HAAR) showed new listings of single-family units in the Huntsville/Madison County market down by 40.9% for the week of January 20, 2024. Meanwhile, pending sales declined 14.4%, even as inventory clicked upwards by 8.1%. 

However, there are signs that this sluggish state of affairs will prove merely temporary. Firstly, it’s important to remember that the winter months are generally slow, even in normal years. Secondly, Fannie Mae’s Home Purchase Sentiment Index (HPSI), which assesses consumer confidence in the general economy and the sentiment towards buying a home, saw a three-point rise in December. This puts the HPSI 6.2 points year-over-year. 

This increase in consumer confidence is bolstered by the expectation that the Federal Reserve will, at worse, hold interest rates at the current level, and it is expected lower rates, possibly repeatedly, over the course of 2024. 

In many respects, this confidence in better prospects in the near-future is a boon, as homeowners come to terms with a more stable market, even if the low mortgage rates of 3% appear to be a thing of the past. However, experts warn that we will likely see some fluctuation as rates stabilize. 

“They’re going to drop down and people are going to get excited, and then the rates are going to bounce back up,” predicts Realtor.com Chief Economist Danielle Hale. 

In a troubling development, scam artists have taken to posting fake listings of properties owned by other people, in an attempt to swindle would-be homebuyers and leaving a legal mess in their wake. 

Homeowners are advised to check local real estate listings to ensure that their property hasn’t been listed by an imposter; some have gone so far as to post physical for-sale signs on the land itself. House hunters are advised to make use of professional realtors, who have both experience in recognizing the scam as well as additional resources to verify whether a listing is authentic from the real owner. 

As always, the Huntsville Business Journal will continue to monitor the real estate market, both nationally and here at home, to keep its readers informed.