Housing affordability crisis worsens: delistings surge | Official Website of Louis Velazquez, entrepreneur, finance guy and tech innovator

Homeowners are increasingly pulling their listings off the market rather than lowering prices, underscoring a growing divide between what sellers expect and what buyers can realistically afford.

During the pandemic, many locked in mortgage rates at a record low of 3% and became homeowners. However, with the Consumer Price Index (CPI) up 3% year over year and 30-year mortgage rates at 6.2%, according to Freddie Mac, affordability has sharply deteriorated.

New data from Redfin show just how sellers are holding firm, even as rising home prices and higher mortgage rates have pushed buyers to the sidelines.

In September, the number of U.S. home delistings jumped a record 28% year over year. Nearly 85,000 U.S. sellers took their homes off the already-strained housing market, the highest level for September in eight years.

Many of these properties had lingered for months, with 70% of the listings considered “stale,” having been on the market for at least 60 days.

The typical delisted home had sat nearly 100 days without any contract, and rather than cutting their asking prices to match a weakened buyer demand, sellers prefer to wait and delist.

Roughly 15% of the delisted houses risked selling at a loss, and the owners preferred to rent them rather than sell for a loss.

The median asking price has increased 2.5% year over year.

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While delisting can be a seller strategy, since delisted homes are often re-listed within three months, Redfin noted that “of the homes that were delisted in July then put back on the market, 31.6% of them have sold.”

What is driving the housing affordability crisis?

Part of the confidence also stems from dynamic home price trends. Even with cooling demand, prices continue to edge higher.

Redfin noted that the median U.S. sale price rose 2.4% year over year, marking the largest increase in eight months. The median asking prices climbed 2.5%, reinforcing the belief that home values have not exactly softened.

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While 30-year mortgage rates hover around 6.2%, the expectation is that further rate cuts from the Federal Reserve might prompt a lowering of mortgage rates.

Mortgage rates are up from two weeks earlier, but down year over year.

Interest in homebuying is also up, but this is juxtaposed with a lack of available housing. Google Trends shows a 20% increase in people searching “homes for sale” on the internet, but the larger issue is a decreased supply.

The rentals and homeowner vacancy rates, which make up for the total housing available, are below those seen in the “two decades preceding the crisis and the housing market collapse that triggered it,” according to Goldman Sachs.

At this junction is the growing gap between supply and demand, “the root of the affordability problem.”

Is there a solution to the housing crisis?

Goldman Sachs estimates that the U.S. is short 3-4 million homes, a deficit driven by land use regulations, “which have become more burdensome over time.”

This shortage also reinforces the basic seller psychology. If the market is undersupplied, it will increase demand and consequently prices, widening the affordability gap, which is exacerbated by temperate rates and inflationary pressures.

Another reason is the unavailability of land for housing near city centers, which has decreased from more than 70% at the start of the 1960s to about 40% today, according to the Goldman Sachs report.

This declining productivity comes amid pressure on potential new homebuilders to enter the market (which could increase competition and lower prices).

Combined with an increase in average time needed to complete construction, these factors have left the housing market in limbo.