Metro Realtors, developers hope decline in home sales is 'natural regression'

Des Moines metro Realtors and homebuilders said Thursday that they hope a slowdown in home sales is a natural regression that will help buyers and homebuilders after a long period of tight inventory and pressure to make quick purchasing decisions.

With mortgage interest rates more than doubling since the beginning of 2022 and recession fears looming, metro home sales declined for the fifth month in a row in October, according to the most recent data available from the Des Moines Area Association of Realtors.

Association records show it is the longest sustained slide in at least five years, and that October saw the steepest decline in year-over-year monthly sales during that period. Sales were down 27.5% as compared to October 2021, far exceeding the effect of the recession set off by business shutdowns in the opening months of the COVID-19 pandemic.

During Thursday's virtual event held by the Des Moines Business Record, Nick Jensen, owner of property development firm Caliber Iowa, chose to look on the brighter side. He noted that during the 2007-2009 Great Recession, many construction subcontractors in Des Moines did not get paid when homebuilders went out of business and banks took ownership of projects, but that this time around, there doesn't appear to be as much of a threat.

Jensen said homebuilders are in a much stronger position becausemost companies developing residential projects are doing so without taking loans from banks. He said he is "very hopeful" that the slowdown is "just a natural regression" from the overheated homebuying that preceded it.

The October median home price for the metro was $262,500, down from the record of $283,500 in June, when the decline in sales began, but well above the $250,000 median for 2021. It also remained up 1% from the same month last year.

Jen Stanbrough, a West Des Moines residential real estate broker and past president of the Realtors association, said the slowdown has benefited buyers by giving them more time to think about purchases and see more homes before making offers. There is about four months of inventory on the market in the Des Moines area, which is healthy, Stanbrough said. Homes are on the market a median of eight days. By comparison, the June 2021 median was three days, according to the association's figures.

As recently as this summer, buyers often had to make offers on homes the day they toured them, Stanbrough said. Now buyers can tour multiple homes and educate themselves about the homebuying process, she said.

“Now that we’re entering a bit of a recovery phase it’s nice in that it’s giving buyers a chance to breathe and to take time throughout the process,” Stanbrough said. "(Quick-decision buying) led to a lot of stress-buying … and we were seeing a lot of buyer’s remorse or transactions falling out.”

Nationwide, 632,000 single-family homes were sold in October, a decrease of 5.8% from 671,000 homes sold in October 2021, according to the U.S. Census Bureau and Department of Housing and Urban Development.

Rising interest rates taking a toll

The increase in interest rates blamed for the slowdown has been sharp. According to Freddie Mac, the average 30-year, fixed-rate mortgage climbed from about 3.1% at On Dec. 30, 2021, to a high of 7.08% earlier this month. Last week, it dropped to 6.58%.

The metro's largest private employer, Wells Fargo, which bases its mortgage lending operation in Des Moines, has been feeling the effects, laying off at least 402 workers since April. In September the Mortgage Bankers Association projected that U.S. borrowers would take out 6.6 million mortgages this year, a decline of 51% from 2021.

At Thursday's event, Tracy Frette, a senior mortgage lender with Lincoln Savings Bank, said the run-up in interest rates has had a significant impact on prospective homebuyers' purchasing power. Those feeling the biggest impact are first-time buyers with single incomes and people making below $50,000 per year.

“Today more of our borrowers’ incomes are being used for their housing expense,” Frette said. “With the increased housing prices and increased rates, those two have felt like a double-whammy."

Frette said some buyers are looking at adjustable-rate mortgages that fell out of favor over the last few decades, when interest rates reached all-time lows. Stanborough also said she's seen a surge of interest in the option.

“I have more and more buyers that are talking about those adjustable-rate mortgages, which sometimes are a little scary when you first hear about them. Looking at an adjustable-rate mortgage that we haven’t used in the last several years is really coming into play,” she said.

Sales slowdown doesn't stop development in metro

Despite such jitters, development is continuing in the Des Moines metro, the fastest-growing major metro area in the Midwest during the last decade. Jake Anderson, city administrator of rapidly expanding Grimes, said demand is outpacing the number of available lots there.

However, affordability is an issue. Most new single family homes under construction in the city are in developments with higher-end homes that cost more than $500,000, Anderson said, and a growing number of residents are renting rather than buying.

“We’ve had a mix of emotion from residents about it, but the city doesn’t control every aspect of housing development,” Anderson said. “Single-family homes that are renter-occupied is one way that we can meet the affordability challenge.”

Jensen, the developer, noted that rent and home prices in Des Moines remain below those of most other, larger Midwest metros. He also pointed to an encouraging recent drop in lumber prices, and said he is optimistic that Des Moines will fare better in the current slowdown than during the Great Recession.

"As you look at the local builder, developer profile around Des Moines right now it just feels very strong compared to 2008, when a majority of the homebuilders and developers within a year of a slowdown were out of business," Jensen said.

Philip Joens covers retail, real estate and RAGBRAI for the Des Moines Register. He can be reached at pjoens@registermedia.com or on Twitter @Philip_Joens.

This article originally appeared on Des Moines Register: Des Moines Realtors, builders remain positive as housing sales slow