Housing: Homebuyers confront 'an abnormal' market for yet another year
Less than a month before the start of the traditional home selling season, buyers are once again faced with a brutal housing market.
Not enough inventory to sell, high prices and now rising mortgage rates have created a trifecta of obstacles for homebuyers.
"We're in an abnormal housing market," David Berson, chief economist and senior vice president at Nationwide Mutual, told Yahoo Money. “The problem is the low supply of existing and new homes available, which is feeding the high demand that is driving house prices further up. The real question is whether mortgage rates will choke the market due to excess demand.”
Buyers must be ready to pounce once they find "the one" or one that's good enough, or risk being shut out of the market altogether if affordability ebbs.
Here's what they're dealing with and what a buyer can do.
Home inventory is at an all-time low
On January 20, 2022, a house is listed for sale in Chicago, Illinois. Nationwide, existing home sales in December fell 4.6% from the previous month. This drop in sales is mainly due to a shortage of homes on the market. (Photo by Scott Olson/Getty Images)
This year, more than 45 million millennials, ages 26 to 35, will buy their first home. They are facing a tight supply of homes to buy, an ongoing trend that is being exacerbated by the pandemic.
The total housing stock in December fell 18% from the previous month to 910,000 units, the lowest level since 1999, when the National Association of Realtors began tracking the data. That's a deficit of 500,000 to 750,000 active listings compared to December 2017-2019 inventories, according to Black Knight, a mortgage analysis firm.
Last year, shortages of labor and building materials, as well as supply chain problems, kept homebuilders from developing enough new homes for sale. Many buyers -- who didn't have much to buy -- bought new homes that were still under construction, driving up prices, Berson said.
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In the existing home selling market, the rise of remote working and hybrid working from home does not bode well for homebuyers. If you can work anywhere, you can move anywhere and create new demand in more markets. Others just don't have to move for new jobs and stay there.
Refinancing at lower mortgage rates and ongoing COVID concerns are also keeping current homeowners from selling their homes.
"Owners of existing homes haven't put their homes on the market like they have in the past," Berson said.
Real estate prices continue to rise
Although a widely watched index showed property values decelerating in November -- albeit at elevated levels -- prices accelerated again in late 2021-early 2022, according to Black Knight. Home values rose 0.84% last month -- the largest single-month gain since records began in December.
"Demand is high, but supply chain problems with new home construction are leading to price pressures and house value inflation, [it makes it] more expensive to buy homes," Jeff Ruben, president of WSFS Mortgage, told Yahoo Money.
Black Knight House Price Index
How much more expensive? About $350 more per month, or 32% more than a year ago, according to Black Knight. It now takes 25.8% of median household income to make the average payment on a 30-year mortgage, up from 22.4% at the end of the third quarter.
However, price growth is unlikely to be as strong this year.
"As mortgage rates rise, we expect some weakening in housing demand, which will lead to a slowdown in housing price growth," said Sam Khater, Freddie Mac's chief economist, in a statement.
The story goes on
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