It’s been a never-ending, uphill battle for anyone looking to purchase a home in the housing market.
“COVID has flipped our life upside-down, disturbed many aspects of everyday life, but the housing market [had] exceptional performance,” Lawrence Yun, chief economist of the National Association of Realtors (NAR), told FOX Television Stations. “We have never seen two consecutive years of such high performance, prices rising, double-digit appreciation — so quite the spectacular performance in the housing.”
“Inventory is terrible. There really is nowhere near enough to meet the very high demand. We are seeing between 10-20 and more buyers for every home, driving prices up on a weekly basis,” said Ron Melendez, a senior agent in Los Angeles with Compass’s The Stephanie Younger Group.
“We have experienced decreased inventory which has driven up sales prices dramatically. Some areas have seen prices rise from 15 to 30 percent in the last year,” he continued.
So the market is obviously still hot at this time due to increased inventory. There is data out now that suggests home sales are pulling back and new housing starts are declining. This happens at the same time we hike Fed rates for the first time since 2019.
“I think unreasonable build times and resources have further fueled the strain on inventory and competition,” said Lloyd Fox, a broker, and owner of Long Realty’s The FOX Group in Scottsdale, Arizona.
U.S. home sales fell more than expected in February as rising mortgage rates and a perennial shortage of houses priced out first-time buyers from the market. Sales fell in all four regions. Home resales account for the bulk of U.S. home sales. They declined 2.4% on a year-on-year basis in February.
Mortgage rates surged in February, with the 30-year fixed-rate approaching a three-year high, according to data from mortgage finance agency Freddie Mac. It averaged 4.16% last week, rising above 4.0% for the first time since May 2019.
Mortgage rates are set to increase further after the Federal Reserve on Wednesday raised its policy interest rate by 25 basis points, the first hike in more than three years, and laid out an aggressive plan to push borrowing costs to restrictive levels by 2023.
According to the NAR, the median existing house price increased 15% from a year earlier to $357,300 in February. Sales remained concentrated in the upper-price end of the market.
The NAR said the typical monthly mortgage payment had surged 28% from a year ago, a huge burden for first-time buyers, who accounted for only 29% of sales last month. Economists and realtors say a 40% share of first-time buyers is needed for a robust housing market. There were 870,000 previously owned homes on the market in February, down 15.5% from a year ago.
With costs to build increasing due to inflation, and the supply chain crisis, real estate construction projects are only slated to get more expensive. This leaves real estate investors in a tough position for the first time in a long while.
At what point do investors bull back and stop building? When do projects become no longer feasible?
Builder confidence in the market for newly-built single-family homes moved two points lower to 79 in March from a downwardly revised reading in February, according to the NAHB/Wells Fargo Housing Market Index (HMI).
This marks the first time that the HMI has dipped below the 80-point mark since last September.
“While builders continue to report solid buyer traffic numbers, helped by historically low existing home inventory and a persistent housing deficit, increasing development and construction costs have taken a toll on builder confidence,” NAHB Chairman Jerry Konter said in prepared remarks.
“When suppliers are unsure about future ability to provide materials, prices spike until more clarity is provided by the markets,” Rahimian said. “We do anticipate prices will stabilize further in coming months, especially with the threat of multiple Fed rate hikes.”
All of these contributing factors point to a burst approaching the housing bubble.
Stronger markets in major cities will likely be fine. Locations that traditionally suffer when it comes to housing pullbacks will feel the brunt of these effects.
People need places to live. We are already at a record low inventory. If builders pull back, inventory will shrink even more. Potentially driving the price even further until there is no one left at the table to buy a home.
It is difficult to overstate the challenges facing builders today, Albert Jarrell, Managing Director, National Industrial Development Services, Stream Realty Partners, tells GlobeSt.com. “In my 31 years in the construction and commercial real estate business, I’ve never seen material price increases, shortages, delays, or the inability to secure hard pricing like we are experiencing today.
“Construction budgets and schedules are both increasing to new and unbelievable levels, and the complexity of solving all of these intertwined issues will likely make it difficult to sort out anytime soon.”
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