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The housing market appears to be gradually heading towards recovery.
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According to JPMorgan, homes with locked mortgages are increasingly being put up for sale.
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Meanwhile, existing home sales rose nearly 10% in February.
The housing market appears to be starting to thaw as more mortgage-bound sellers choose to put their homes on the market anyway, according to JPMorgan Asset Management.
The bank pointed to the “mortgage lock-in'' effect, a phenomenon in which existing homeowners are reluctant to sell their properties because they are trying to hang on to the low interest rates they financed their homes with years ago. This negative impact has slowed home sales activity for most of 2023, with home sales down 18.3% last year, according to Redfin data.
However, home sales have been trending upward in recent months, a sign that the lock-in effect may be softening the impact on prospective sellers, the bank said. According to data from the National Association of Realtors, existing home sales rose 9.5% in February from the previous month, and existing home inventory rose 5.9%.
Real estate economists say homeowners may be more willing to enter the housing market as many realize high mortgage rates aren't going away anytime soon. This is adding much-needed inventory to the market, which is being supplemented by new housing supply under construction. JPMorgan estimates that about 1.6 million homes are under construction. Meanwhile, the number of completed housing units surged to 1.7 million units in February, up 15.6% from a year earlier, according to census data.
“The housing sector was one of the hardest-hit areas of the economy when the Fed started raising interest rates, but economic activity has turned the corner,” Stephanie Arriaga, global market strategist at JPMorgan, said in a note Thursday. There are signs that we have arrived.”
This is good news for homebuyers who have been plagued by a supply-demand imbalance for the past few years. Buyers have fewer options than before and a lack of inventory is also pushing up home prices, with the median U.S. home price in February at $412,227, according to Redfin data.
Still, the housing market's recovery is likely to be “slow,” Arriaga said, echoing the view of other real estate economists who say it could take years for supply to fully catch up with demand. It's the same. Federal Housing Finance Agency researchers recently warned that the mortgage lock-in effect could continue for years to come, absent a sudden drop in mortgage rates.
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