As soon real estate agent Scott Oyler listed a two-bedroom home in Cincinnati at $200,000 last week, a flurry of calls came in. Homes at or below the median price range of $250,000 in good condition are hard to come by. Even with 30-year mortgage rates hovering around 6% — two points higher than a year ago — the demand is outpacing the supply. The home received 15 offers by the end of the weekend.
"It’s 2022 all over again," Oyler said of the current frenzy.
According to the National Association of Realtors’just-released data Tuesday, the median sales price was down national 0.2% year-over-year. Compared to a month earlier in January, the median home price fell for the first time in 11 years from $363,700 to $363,000, the first month-to-month decline since February of 2011.
The price tells part of the story. Real estate is local and markets differ. But markets across the country are exacerbated by inventory issues. Here’s a look at the main causes.
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1. Interest rates: For over a decade beginning in 2010, mortgage interest rates have been low, in the 3% to 4% range for 30-year loans. It wasn’t until May 2022 that the Fed began to hike interest rates, which are now in the 6% to 7% range for people with good credit. That means people who have lower interest rate mortgages or have refinanced when rates were low are reluctant to sell their homes and give up that lower rate to move into a higher rate, Oyler said.
2. Aging in place: Empty nesters are holding on to their large homes due to the costs of acquiring another property, Oyler said. In the past, older people may have moved to smaller patio homes, but the cost of new construction is high they stay put, instead remodeling their large homes. The median cost per square on new construction in Cincinnati is $370 versus $165 for an existing single family home, according to Oyler’s Coldwell Banker data.
3. Pent-up demand: The market is balancing currently between buyers and sellers, said Jonathan Duerr of Compass Real Estate of South Florida. But there is still a pent-up demand from buyers who did not purchase homes during the frenzy of the last two years during the pandemic.
4. Lack of movement: In a traditional market, people will want to move to a new neighborhood or when they see a new design they like, Oyler said. Now, people stay put, with low inventory being a domino effect. "People are afraid they won’t be able to find another home," he said. In the Midwest, there is little movement with the market being more conservative and people moving for life events such as job transfers or divorces, he said.
5. Cash is king: In wealthier markets such as Palm Beach, Florida, buyers are not impacted by higher interest rates as they are paying for homes in cash, said Duerr. In Palm Beach County, homes range from $500,000 to $50 million, Duerr said, noting the most expensive home his team sold in 2022 was $48 million.
