Cooling US Housing Market, Lowest Sales in 2 Years... Home Prices Hit Another Record High

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] The US housing market is rapidly cooling due to soaring inflation and rising mortgage rates. As demand shrinks, the number of transactions has fallen to pre-COVID-19 levels.

According to the National Association of Realtors (NAR) on the 20th (local time), existing home sales in June were recorded at 5.12 million units (annual rate), down 5.4% from the previous month and 14.2% from the same month last year. This marks the fifth consecutive month of decline and is well below market expectations (5.35 million units). Excluding the pandemic period, this is the lowest since January 2019.

This is interpreted as a consequence of the Federal Reserve, the central bank, aggressively raising interest rates since the beginning of the year to curb inflation, causing mortgage rates to surge to the highest level since 2008, which has dampened demand. In particular, housing prices surged during the pandemic period based on low interest rates, and recent concerns about an economic recession have also dealt a direct blow.

Lawrence Yun, Chief Economist of NAR, evaluated that "the combination of high prices and high mortgage rates has changed the dynamics of the housing market." Mark Zandi, Chief Economist at Moody's, also assessed that "buyers are unable to estimate appropriate prices," and that the housing market has frozen due to rising mortgage rates.

However, housing prices remain at a high level. The median price of existing homes sold in June was $416,000 (approximately 545.8 million KRW), up 13.4% from the same month last year. This is the highest price since statistics began in 1999. The market expects the housing market to gradually shrink in the future, considering that it takes time for demand contraction to lead to a decline in housing prices.

This is expected to further spread concerns about an economic recession. A housing market downturn means immediate layoffs of construction workers and a sharp drop in demand for materials such as steel. It is also evaluated that it could deal a blow to households and banks.

According to the Mortgage Bankers Association (MBA), mortgage demand last week plummeted more than 6% from the previous week, falling to the lowest level in 22 years since 2000. The US Department of Commerce announced the day before that new housing starts and permits in June both fell to their lowest levels since September last year. The July Housing Market Index, which indicates builders' confidence in the US housing market, also dropped sharply by 12 points from the previous month to 55. This decline is the largest since the survey began 37 years ago, except for April 2020, right after the pandemic.

This content was produced with the assistance of AI translation services.