Iran war upends spring housing

A version of this article first appeared in the CNBC Property Play newsletter with Diana Olick. Property Play covers new and emerging opportunities for real estate investors, from individuals to venture capitalists, private equity funds, family offices, institutional investors and large public companies. become a member to receive future editions straight to your inbox.

The all-important spring housing market is progressing well, but expectations are falling short due to the war in Iran and its impact on the US economy and consumer confidence.

Mortgage rates, previously predicted to be much lower this spring than last year, are now much higher, and concerns about employment and inflation are throwing pent-up homebuyer demand into cold waters.

In the first quarter of this year, buyers were more interested in the economy and mortgage rates than home prices, according to real estate agents who participated in the quarterly CNBC Housing Market Survey.

“They’re scared of war, they’re scared of gas prices, [for] “They have job security,” said Faith Harmer, an agent in the Las Vegas metro area.

The CNBC Housing Market Survey is a national survey of randomly selected real estate agents in the United States. Responses to the first quarter survey were collected between March 24 and March 30. This quarter, 70 representatives shared their opinions.

When asked about their buyers’ primary concerns, nearly a third of agents mentioned the economy, while another third mentioned mortgage rates. The latter only recorded a huge jump from 26% in the fourth quarter.

Only 9% of agents surveyed in the first quarter said prices were buyers’ top concern; In the previous period, this rate was 18%.

This should come as no surprise, as the average interest rate on a 30-year fixed mortgage reached a low of 5.99% the day before the start of the Iran war and began climbing thereafter. It is currently hovering around 6.5 percent.

Still, while the majority of agents said prices were stable or falling, almost twice as many agents (29 percent) reported that home prices increased in the first quarter compared to the previous quarter. Price dynamics can vary greatly depending on the market and region of the country.

But affordability is not increasing as much as most experts predicted. When asked how affordability affects buyers, 19% of agents said it caused them to leave the market. At the end of last year, this rate was only 11%.

More than half of the agencies reported that at least one contract was cancelled.

“Buyers who were stuck and decided to buy are now on the fence and going the other way, saying, ‘I’m not going to buy,'” said Eric Bramlett, an agent in Austin, Texas.

As buyer demand declines, homes sit on the market longer. In the first quarter, 31% of agents reported their listings had been on the market for more than six weeks, compared to 26% in the fourth quarter.

“We recently had a price where they wanted what they wanted, and they couldn’t come down to a price the market could bear,” said Harmer, the agent in Las Vegas. “So they eventually took it off the market.”

Sellers are now more concerned about this waiting period. A full 37% of responding agents said time on market was sellers’ top concern, up from 30% at the end of last year.

This took share from sellers’ top concern, price, falling from nearly half of agents to 39%.

Still, fewer agencies reported price reductions than in the previous quarter; however, this may be a result of seasonal dynamics and the impact of lower mortgage rates in the middle of the first quarter giving buyers more purchasing power.

That may also be why fewer agents said they had to delist homes compared to the fourth quarter, when agents reported a slower-than-usual decline with more frustrated sellers.

Even as concerns about the economy and interest rates grew, agents in the first quarter said the market was either in the buyer’s favor or balanced. The share of those who call it a buyer’s market fell from 42% to 36% from quarter to quarter, likely due to new buyer headwinds such as high mortgage rates, war and a weak job market. And sellers are taking notes.

“We’ve had two sellers who were planning to list in May already decide, ‘Let’s wait, look for our next home to buy later in the summer, and then try to list in the fall,'” said Dana Bull, a Boston-area agent. “So they initially thought spring would be perfect for them because they felt like it would be the best time, and now they don’t feel as confident and they want to wait and see.”

Just over half of the agents surveyed said they expected the market to improve as the spring progressed, but that share was significantly lower than at the end of last year, when there was no war involved.

A larger share of agents said they expected the market to remain the same as last quarter, given that the market is moving from the historically slowest season for housing to the generally busiest season.