The Federal Reserve moved last week to raise its key short-term interest rate by three-quarters of a point for the fourth straight time, making mortgages and other loans more expensive. It’s the latest attempt to tamp down rising inflation without tanking the U.S. economy. The results of which, so far, are a mixed bag.
Prices are still rising at a near-record pace, but the country’s GDP, the total of all goods produced from July through September, increased at a 2.6% annual pace, far more than expected and easing any short-term recession fears.
So, what does that mean for us? One of the fastest-growing regions in the country and a place where wealth increased substantially along with real estate prices during Covid? As the Fed continues to increase the cost borrowers must pay to afford a home loan, presumably, the overall price of a home will decrease.
There are small signs that this happening. That can be partially attributed to the waning demand for real estate. Nationwide, pending home sales fell 10.2% in September from August, much worse than expected, and sales were down 31% year over year, according to the National Association of Realtors (NAR).
Locally, in Flathead County, the drop was even more precipitous. According to numbers compiled by the Beacon’s real estate analyst Richard Dews, both land and residential sales fell hard during the third quarter of 2022. When compared to their Covid-related peaks two years ago, numbers are down even more.
During the recent quarter, local residential sales decreased 33% from the previous year and a staggering 51% from 2020. Land sales fell 53% from year ago and a whopping 74% from 2020.
But while the number of transactions has nosedived, the accompanying price cuts, again, have been small. You can peruse the local Zillow website and see some reductions. Asking prices have been slashed here and there by $10,000 or $20,000. But the real estate is listed far above pre-pandemic levels and the inventory is sparse.
Many of those who would otherwise sell their homes are staying put and sticking with their locked-in interest rates that are half the rate of today’s, or less. Potential homebuyers, meanwhile, have watched their buying power dwindle as interest rates keep rising, increasing a monthly payment by hundreds or thousands of dollars. The result of fewer sellers and qualified buyers hasn’t yet resulted in a meaningful correction.
Instead, it has resulted in first-time homebuyers accounting for the smallest share of the real estate market in 41 years, according to a recent survey from NAR. That segment of buyers, which traditionally has made up about 40% of the market, plummeted to 26% during the 12-month period ending in June 2022. The average age of first-time buyers also increased to 35, the oldest ever recorded since the association began tracking such data in 1981.
There are still people buying homes, but they are older and more often paying cash. In a growing market like the Flathead Valley, it’s no wonder younger people feel at once bitter and helpless. As the state appoints a Housing Task Force to reel in prices by cutting red tape, the Fed continues to jack up the cost of borrowing money to buy a home.
Let’s just hope they know what they’re doing. Because something has to give.
Stay Connected with the Daily Roundup.
Sign up for our newsletter and get the best of the Beacon delivered every day to your inbox.