There’s a big shift happening in the housing market
Breakneck. This is the best way to describe the pace of the housing market in 2021. The bidding wars became so intense this year that home price growth set a new record.
But the tide is turning.
The rush of buyers to the housing market during the pandemic absolutely crushed the housing stock - the number of homes in the market - with that number falling for 12 straight months. By April the housing stock had declined by an astonishing 53% year-on-year. However, the trend has turned: the number of houses for sale has risen for two months in a row. The realtor.com property offers rose by 3% in May and again by 9% in June. That's not all: we learned last week that new home sales were falling - their pace in June was the slowest since the pandemic began. Everything indicates that the market is shifting a little in favor of buyers.
Why the sudden cooling? Home buyers are finally showing some reluctance to pay top dollar.
“The housing market was too hot for itself last year, and we've seen some buyers hit an invisible price ceiling,” Ali Wolf, chief economist at housing research firm Zonda, told Fortune. A Zonda survey of home builders last month found that 61% of home builders see more resistance from home buyers.
This buyer hesitation was to be expected. After all, home prices cannot continue growing indefinitely at a rate of 17% year over year. At the end of the day, household budgets can only go so far.
And more cooling could be on the way. As Fortune reported last week, the pace of home sales could slow as recent protections wear off. The foreclosure moratorium that prevented foreclosures on government-backed mortgages ended on July 31. Next up is the Mortgage Forbearance Program, which allows some borrowers to suspend payments; it expires on September 30th. This forbearance program still protects 1.75 million borrowers, or 3.5% of US mortgages. Homeowners who still have financial problems might choose to sell their home instead of resuming their mortgage payments. Of course, in this case the housing stock would continue to grow.
But the slowdown doesn't mean home prices will fall. In fact, research firm CoreLogic predicts that house prices will rise another 3.2% through June 2022. Make no mistake about it: this is still a seller's market.
"It's important to note that many homes are still selling almost as quickly as they come on the market," says Wolf. "The difference today is that the number of houses that are bidders or sold above the letter price has decreased so easily ... some houses are now being sold below the letter price."
The reason research companies like CoreLogic believe prices can go up is because of demographics. We are in the middle of the five-year period when the largest generation of Millennials, born between 1989 and 1993, will turn 30 - the age when first-time home purchases really take off. Home builders have not prepared for this: House construction slowed down during the 2010s when home builders struggled with the financial scars of the property bubble of 2008 and the subsequent foreclosure crisis. Not to mention, the housing market is still benefiting from the perfect storm caused by the pandemic: recession-driven low mortgage rates coupled with remote workers willing to uproot in search of affordable real estate.
This story was originally featured on Fortune.com
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