It seems that current homeowners could have a serious case of FOMO—fear of missing out—right now.

According to Realtor.com, the supply of homes in mid-May went up 9% compared to last year's same week.

The mortgage brokerage Redfin also said new listings went up almost twice as fast as the four weeks that ended May 15 as they did a year ago.

Pending home sales went down nearly 4%, a measure of contracts signed on existing homes. According to data cited by the National Association of Realtors, they were down over 9% from April 2021.

The significantly higher mortgage rates are causing a pullback in sales, but sellers are rushing into the market in response. They’re hoping to get in on the action before what has been a record market cool off, possibly dramatically.

The 9% increase in the supply of homes for sale was the biggest annual gain Realtor.com has seen since tracking the data in 2017.

Daryl Fairweather, Chief Economist at Redfin, said rising mortgage rates are causing the housing market to shift. Home sellers are trying to quickly find a buyer for their property before further weakening.

Sellers are seeing the obvious softening of the market.

The pending home sales going down almost 4% is an important index because it looks at the signed contracts on existing homes rather than closings. That makes it a timely measure of how buyers perceive and react to higher mortgage rates. This was the sixth consecutive monthly drop in sales, and it was the slowest pace in almost ten years.

The April numbers for the sales of newly built homes, which is something also measured by signed contracts, went down by 16% compared to March. The gap was much wider than most expected.

At the start of the year, the average interest rate on a 30-year fixed mortgage was 3%, now over 5%.

During the initial two years of the pandemic, housing prices rose steadily, but the mortgage rates tended to offset the high prices.

Home sellers were definitely at an advantage six months ago, but now there’s less competition from buyers, and there’s a significant decline in some places.

Redfin has a demand index that measures requests for home tours and certain home buying services. That index was down 8% year-over-year during the week ending May 15. That was the biggest decline since April 2020, which was a time when the pandemic paused the majority of people’s homebuying activity.

There are three big reasons for the shift in the housing market. The first is what was discussed above—the Federal Reserve is working to combat inflation, and their biggest tool to do so is raising interest rates. The Fed is putting significant upward pressure on mortgage rates to cause demand destruction.

The second factor is that the housing market is overvalued. Moody’s Analytics recently found that 96% of regional housing markets are overvalued, with home prices above what local income levels can realistically support.

The third factor is the U.S. economy. The Fed has signaled that by pulling inflation down, there will also likely be an increase in unemployment. Plus, if there is a recession, employers might have more leverage to force their employees back into the office, ending the effects of work-from-home on homebuying.

The good news for buyers is that levels of inventory are finally going up again.

Source: Redfin.