There are two major ways homes enter the market: Somebody builds a new one or somebody sells an old one. Both of those pipelines are a bit out of whack right now. There aren’t enough homes for sale and too many buyers who want them. There is too much demand and not enough supply.
Builders Are Struggling to Catch Up
The limited supply of new homes is due to factors both old and new. For the last decade, builders haven’t been able put up houses at the rate they needed to in order to handle today’s demand, which has created a deficit of a great many homes. At the same time, costs have gone up since the pandemic because of 5 different things:
- Labor: Builders are having a hard time finding skilled workers.
- Lots: Since there has been such a run on existing homes being sold and bought, there is an excess of lots available with no homes on them.
- Lending: Homebuilders, especially the smaller companies, face a tighter market for borrowing the money needed to build.
- Lumber and building materials: Lumber prices were about $350 per thousand board feet in January 2020. Now, they are about $1,300. On top of lumber, there are shortages and delays in almost everything from garage doors to microwaves.
- Laws and regulations: Issues like zoning can limit how many homes can be built in a certain amount of space.
The tight housing market means new construction is even more important for buyers trying to get a home. While new homes typically account for less than 1 in 10 sales, that figure is now about 1 in 3. Supply chain issues also mean new homes are taking longer to build – from a typical time of about six and a half months to now about eight months.
Fewer People Are Selling
Existing homes make up most of the market, but the supply of those is ridiculously low right now. Some of that has to do with the affordability issues affecting buyers. It has gotten to the point where about 79% of homeowners would rather renovate their home than risk selling and not finding a suitable replacement that they could afford.
High home prices might seem to encourage people to sell their homes and cash in, but most of those people would have to buy another home, and pay those high costs. They could easily end up losing money or forced to buy a home that they don’t like.
There Are More Buyers
Besides the supply and demand issue, millennials are also entering their prime homebuying years. This is a very large group of potential buyers who now are married with families. Additionally, the pandemic has also made remote and hybrid work a possibility for many. That means you don’t have to live close to an office and you might need more space than you can find in an apartment. Remote work means owning a home is a possibility for more people adding to demand for new homes.
When Will the Housing Market Calm Down?
It will likely take a while before the inventory of available homes matches up with demand. Experts surveyed by Zillow predicted it’ll be two years before monthly inventory returns to pre-pandemic norms. They estimated it could be 2024 or 2025 before the portion of first-time buyers again reaches the 45% seen in 2019.
Rising mortgage rates – they’ve gone from near 3.3% at the start of the year to near 6% in six months – will likely take some buyers out of the market and slow the rise of home prices. Higher mortgage rates might not directly lead to lower prices – supply and demand will still be the big factors.
The factors driving up prices aren’t likely to subside anytime soon, Dietz says. “I don’t think buyers should be betting on any really significant price declines. If anything, as interest rates move higher, the cost of buying a home is going to go up.”
What Can Homebuyers Do In This Market
Look at new construction if you haven’t already. Keep in mind there is a longer lag time than usual, but it will definitely be easier than competing for scarce existing homes with the mob of other potential buyers (and investors and flippers with cash offers). Slow down and consider your options while the market is adjusting. Choosing a custom built home over buying an existing one could give you the perfect opportunity to own the exact home you’ve envisioned for your family.
It is very clear that there aren’t enough homes in today’s market to meet the great demand for homes there currently is. Building a hoIf you’re looking for a lot and/or house to call HOME, contact Lady Street Builders for a consultation.
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