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Housing supply demands weigh on new buyers

Old homes not being sold, new homes not being built lead to concerned buyers

What’s going on with housing supply and demand?

Google these three words—will housing crash. 

Most of the story links that appear ask if the housing market will crash.  

That’s some daunting stuff to see. 

In a year where people are seeing record home price appreciation, it’s a legitimate question consumers are looking to their real estate agents to answer.  

It’s important to consider what is currently happening and what to look for. 

Nationwide, home prices have increased by 15.4% in the last year. CoreLogic predicts that home prices will increase on a month-over-month basis by 0.8% from May 2021 to June 2021, and on a year-over-year basis by 3.4% from May 2021 to May 2022. 

First-time homebuyers like Gen Zers and millennials have stepped into the market due to friendly mortgage rates, but high prices are discouraging potential buyers, particularly low-income families.

Affordability will continue to be an issue with rising home prices. 

In a CoreLogic survey of potential consumers, 33% said they would wait on buying a house rather than sacrifice their assets. 82% said they are discouraged because of housing affordability. 

So is it doom-and-gloom for buyers? 

Not necessarily. In an interview with RealTrends, chief economist at Redfin, Daryl Fairweather, thinks most consumers are just waiting it out for better housing options. 

“The housing market is already showing signs of cooling,” she said. “The number of homes listed for sale recently surpassed 2019 levels for the first time since the start of the year, and despite this, demand is also slightly slipping. Buyers don’t have the same sense of urgency that they did at the beginning of the year. Mortgage rates are also staying low, so many folks may choose to wait until more and better homes are listed.” 

Inventory shortages are a constant problem for future buyers, specifically younger millennials approaching their 30s. According to Matthew Gardner, the University of Washington economy instructor and chief economist at Windermere Real Estate, the reasons vary. People are not relocating for jobs as frequently, people live in their homes longer and are not selling them, people are not retiring in large enough numbers and not selling their old homes. 

This is a tough reality for first-time buyers. In an interview with Gardner, he spoke on housing trends prior to 2020.

“They [millennials] are the group that quite frankly concern me more than any other,” he said. “They see mortgage rates not at absolute historic lows but not far from it. They’d like to get into the market but the question is, where can they afford to buy? There is a limited amount of supply for them but the market is so competitive.

“The other part is, we’re creating new households but builders are not keeping up with the pace of the production of housing,” Gardner said. “It’s because of the insane amount it costs to build a home in many parts of the country. So, if we’re not seeing that turnover, as in sales of existing homes, because we’re living longer, and we’re not adding on to new supply, even though population household growth continues. Well that puts a lot of pressure on homes that do come to market. And that’s why many markets are extraordinarily tight and it’s very competitive.”

        

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