NEW YORK – The U.S. housing market is split with some home buyers staying out of the market due to high mortgage rates and other buyers jumping into the luxury market.
The National Association of Realtors® reported the annualized rate of second-hand homes sales in January was 38% lower at 4 million sales, compared to January 2022. Meanwhile, in the luxury home market valued at $1 million or more, sales in January were 27% higher than a year before, with buyers benefiting from the 34% rise in the S&P 500 stock market index over the past year.
In New York City, the number of all-cash home sales increased by 18% in the last three months of 2023 compared to a year earlier. All-cash sales now account for 68% of all sales, which is a new record, according to Douglas Elliman.
Chen Zhao, head of economic research at Redfin, said, “This time last year almost everyone was predicting a recession, and buyers were more cautious, [saying] ‘Maybe I don’t need that second home.’ Now with this sense [the economy] has achieved a soft landing, there’s been a sentiment bounce in the luxury market.” The average 30-year fixed rate mortgage was 6.87% on March 11, down from the peak of 8.03% in October but higher than the 2.75% low in January 2021.
Joel Kahn, deputy chief economist at the Mortgage Bankers Association, said, “Even if you really want to move, it’s hard to swap a 3% rate for one at 7%.” Part of the cost equation is the higher costs of running a home, with families with median income spending nearly 50% of their income on mortgage and childcare costs in 2019, and the amount of income spending on mortgage and childcare costs rose to 66% in January 2024, according to Zillow.
High mortgage rates are not the only expense keeping potential home buyers on the sidelines, home values have risen by 46% since January 2020, according to the S&P CoreLogic Case-Shiller index. Zillow has reported that the average home price in the United States is now nearly $348,000. In the luxury market, stock market gains have driven the surge in cash payments for homes, making high mortgage rates less concerning.
Source: Financial Times (03/15/24) Cox, Hugo
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