Sellers are pulling their homes off the market. Here's why that matters
"This is re-freezing the housing market," one expert said.
Sellers are taking their homes off the market in droves, putting upward pressure on housing prices and cooling off an already-chilly market, some analysts told ABC News.
Nearly 5% of home listings were taken off the market in May, the highest share of delistings in the month of May since Realtor.com began collecting data in 2022, according to a report shared with ABC News.
"The consistent upward drift over four consecutive Mays underscores a shift in seller behavior nationally," Realtor.com said.
In recent months, a double-whammy of increased prices and high mortgage rates has put homes out of reach for many buyers, prompting sellers to de-list their homes in the absence of purchasers, some analysts told ABC News.
Heightened economic uncertainty amid the Iran war has also paralyzed some buyers disenchanted by elevated consumer prices and a murky path forward for mortgage rates, they added. It's another reason why sellers have opted to wait for a friendlier market.
"This is re-freezing the housing market," Susan Wachter, a professor of real estate at University of Pennsylvania's Wharton School of Business, told ABC News. "It's a standoff between buyers and sellers."
The housing market hit a snag four years ago when a pandemic-era buying spree cooled as rising mortgage rates shut out homebuyers. At the outset this year, however, glimmers of hope appeared to emerge.
In February, the average interest rate on a 30-year fixed mortgage fell to its lowest level in nearly four years. A measure of housing affordability issued by the National Association of Realtors, meanwhile, indicated the best market for homebuyers since 2022.
The favorable market began to shift after the Iran war began on Feb. 28, prompting a historic oil shock that sent fuel prices surging.
U.S. Treasury yields soared as the Iran war stoked inflation fears, driving borrowing costs for everything from mortgages to credit card rates.
Since bonds pay a given investor a fixed amount each year, the specter of inflation risks higher consumer prices that would eat away at those annual payouts. As a result, bonds become less attractive. When demand falls, bond yields rise, hiking the cost of borrowing.
The average interest rate for a 30-year fixed mortgage soared from 5.99% in late February to 6.6% in early June, Mortgage News Daily data showed.
Each percentage-point rise in a mortgage rate can impose thousands or tens of thousands of dollars in additional costs each year, depending on the price of the house, according to Rocket Mortgage.
"Mortgage rates have been going up the last several months so buyers have just thrown up their hands. That led sellers to say 'I'll just take my house off the market,'" Ken Johnson, a real estate economist at the University of Mississippi, told ABC News.
Elevated mortgage rates have also contributed to a phenomenon known as the "lock in" effect, some analysts said.
Mortgage rates remain well above the rates enjoyed by most current homeowners, who may be reluctant to put their homes on the market and risk a much higher rate on their next mortgage.
"Inventory is declining," Wachter, from the Wharton School of Business, said. "There is friction in the market."
The market paralysis could stretch on for as long as a year if mortgage rates remain elevated, Wachter added, noting market expectations that interest rates will be left unchanged at the Federal Reserve over the coming months.
Interest rate may even rise in the latter part of this year, futures markets showed. After a better-than-expected jobs report on Friday, the odds of a rate hike this year increased markedly, according to the CME FedWatch Tool, a measure of investor sentiment. The chances of a quarter-point rate hike in December stood at 43% as of Monday, the tool said.
Tight market conditions may also prevent home prices from falling in the near term, since the supply of fresh homes could remain limited, University of Mississippi's Johnson said.
"I just don't see prices dropping," he added.
The market could loosen up if mortgage rates were to ease, Johnson noted. In theory, a resolution of the Iran war may reopen the Strait of Hormuz and bring down fuel prices, which in turn could ease bond yields and lower mortgage rates.
"If mortgage rates come down, you'll see listings go back up," Johnson said.
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