Mortgage rates driving lower housing supply
It's getting tougher for house hunters to find a home to buy, particularly in large cities, as the housing industry faces a dearth of inventory.
The number of homes for sale in 2023 decreased in 21 of the 50 largest metropolitan areas compared to this time last year, according to a new report from Realtor.com. San Jose, California, saw the steepest decline, with 35% fewer homes listed for sale this year. Sacramento, California, ranked second highest, with a decline of 27%; followed by Hartford, Connecticut, where listings were down 26%.
Real estate agents in those cities told CBS MoneyWatch that in addition to inventory declines, elevated home prices and mortgage rates have changed the way buyers shop and quelled sellers' eagerness to sell.
"In Sacramento, homes under $500,000 are moving very quickly because buyers in that price range don't have a lot of options," said David Orr, an agent for Redfin in Sacramento. "The inventory is really tight because sellers are hesitant to list their current home when they have such a low interest rate."
Homeowners most likely have a lower interest rate on their current mortgage than what they would be offered if they financed a home today.
Interest rates climbed to nearly 7% this week for a 30-year, fixed-rate home loan, after dipping as low as 6% in February. The median home listing price grew to $430,000 in April, up from $406,000 at the beginning of the year, according to Realtor.com.
While competition for houses is intense in California's capital city, Orr said buyers are being cautious about their bids and asking sellers to help with closing costs or to pay for a lowered interest rate.
"I am seeing multiple offers, but it's not like last year, when everyone was like 'Hey I'm going to give you a first-born child along with this offer,'" he said "Now, people are making offers a bit above or below the asking price."
Bidding wars are new norm
Braxton Warren, a real estate agent at Compass, said Sacramento homes are priced lower than nearby Seattle and San Francisco, which is also fueling hot competition there.
"House hunters have acknowledged the shortage of options but have come to accept the reality of the situation," Warren told CBS MoneyWatch. "Homes are under a bidding war with 20-30 buyers all in line for the same home."
Meanwhile, in Connecticut, the Hartford area "has witnessed a significant decrease in inventory, resulting in a transformative market shift," said David Krasnoff, a realtor at Compass.
"Bidding wars have become the norm as every reasonably priced home brings in multiple offers, often exceeding the listing price," Krasnoff said.
Other cities that saw year-over-year inventory declines are:
- San Diego (26%)
- Milwaukee (23%)
- Cincinnati (23%)
- San Francisco (20%)
- Chicago (18%)
- Washington, D.C. (16%)
- Rochester, New York (13%)
- Seattle (11%)
- Providence, Rhode Island (11%)
- New York City (10%)
- Los Angeles (10%)
- Baltimore (8%)
- Philadelphia (6%)
- Detroit (5%)
- Boston (4%)
- Virginia Beach, Virginia (2.5%)
- Minneapolis (2%)
- Riverside, California (1%)
- Cleveland (.5%)
Cities where the number of homes for sale increased were mainly in the South, including Austin, Texas; Birmingham, Alabama; Jacksonville, Florida; Nashville; and San Antonio.
A nationwide lack of inventory has become a major headline in the housing market with homebuyers now facing a triple whammy of higher mortgage rates, elevated asking prices and few options from which to choose.
Inventory overall grew in May when compared to a year ago but the rate of growth has slowed over the past three months, according to Realtor.com. A shortage of skilled workers in the construction industry is partly to blame for the decline in new homes for sale, the National Association of Home Builders has said.
Despite higher prices, more than 4.2 million people bought houses in April, according to the National Association of Realtors.
"The good news for sellers is that buyers are still out there and this month's slower growth in the active inventory of homes for sale indicates that shoppers are in the market and actively searching for homes that fit their needs and budget," Danielle Hale, Realtor.com's chief economist, said in a statement.
Khristopher J. Brooks is a reporter for CBS MoneyWatch covering business, consumer and financial stories that range from economic inequality and housing issues to bankruptcies and the business of sports.
Thanks for reading CBS NEWS.
Create your free account or log in
for more features.