The Housing Market Inventory is just about to get better. Here’s why!

The Housing Market Inventory is just about to get better.

Here’s why.

This is one of the most controversial topics I have to cover this year because in part it is true. If you have been following the real estate news all through the year, two things must have come out clearly to you already. First, inventory is tight, there is no activity in new construction and some regions are suffering more than others. Take an example of California, New York, or New Jersey which are some of the markets that have recorded a high ‘hemorrhage’ of people due to high real estate prices. Second, there is a cloud of optimism with so many experts arguing that the housing market is about to get better, especially in the markets that have high real estate prices.

Today, the prices for new and existing homes are at a record high and the demand is still skyrocketing. The rates are relatively low which partly explains why people are in a hurry to buy. Going by the data from Zillow, homes are staying on the market for an average of 6 days only nationally marking quite a remarkable turnaround. However, how stiff the competition is and the need to supply more homes, otherwise, this is only the beginning of prices soaring beyond anything we’ve ever seen.

There are a few factors that have led to this phenomenon. The first and perhaps the most obvious one is the Covid-19 pandemic which has accelerated the home buying process for most people. Earlier, we mentioned in a previous article that homes have never been this important. In addition to that, the historically low-interest rates only added to the thirst for new homes. Plus, there’s also the fear that if people do not buy now, they might be locked out for while before such opportunities present themselves again in the future. All these market conditions seem to favor one particular group of people, the majority of the millennial of whom are just reaching the prime buying years. As such, going forward, we should be expecting a sky-high demand for new homes which presents a set of new challenges for the federal government and the states alike.

KEEPING UP WITH THE DEMAND

This is a giant issue that we have to face altogether. For a long time now, we have focused on the millennials forgetting the Gen-Zers whose older members are now 24 years old and ready to become a homebuyer. The demand might quadruple in the next 5 years, which is why we

must not delay our efforts to build any longer. Homebuying in America is poised to become more expensive if not impossible. The total inventory hit a record low of just 2.7 months’ supply in September last year and sunk even lower to 2.5 months’ supply in October.

According to a recent report by NAR homebuying hit a record high in August last year while a separate Bloomberg report found that going by the current supply rate, the US is likely to run out of homes sooner than later.

It is however not all in vain as builders have been working round the clock to remedy the situation. In fact, going by the census data, construction in the country for new homes in September last year started at a seasonally adjusted annual rate of 1.42 million which is a 1.9 percent increase from the previous month and an 11 percent increase year over year.

THERE IS HOPE AFTER ALL…

Perhaps this is a trend only starting to gain traction. Numerous reports now show promising activity in new homes construction in the country surging after the winter weather than slowed down the activity in February this year. In March alone, the United States started at a seasonally adjusted annual rate of 1.74 million which is an incredible 19 percent increase from what was recorded in February and a 37 percent increase year over year.

That is not all, there was an increased pace for construction permits in march even though by smaller increments. To put it into perspective, new home construction permits happened at a seasonally adjusted annual rate of 1.77 million just a 2.7 percent increase from February and a 30 percent increase year over year. construction more than doubled in the midwest states putting downward pressure on the home prices. In addition, the northeast and Southern states also recorded faster rates of new home construction while home building activity slowed in the western states. To add to that, new construction for both Single-family homes and multifamily properties increased by 15 percent and 30 percent respectively.

TAKING THE PROBLEM HEADS ON!

America’s problem is not the high prices of homes rather the lack of homes. In fact, a recent analysis by Freddie Mac estimates that the U.S. is 4 million units shy of meeting the demand of new homebuyers. Since 2018, this deficit has only grown wider to as much as 50 percent. This problem cuts across the board wherein sellers are facing the same problem as the buyers. If you cannot find a new home to buy, how are you going to sell your current home? In fact, data shows that in March this year, there were 117,000 fewer sellers on the market for existing homes.

“There is a strong understanding of the role and increase in new homes plays in today’s housing market and we hope this momentum will continue throughout the year to ensure there are homes to meet the extreme demand from buyers,” said Bill Banfield, Rocket Mortgage’s executive vice president of capital markets.

In order to solve this problem once and for all, we need to build more, at least build at a steady pace. However, America’s affordability has been compromised due in part to the rising lumber cost and high mortgage rates. “With the cost of lumber reaching new highs, however, the higher costs are being passed on to consumers. While new construction is a critical component in rebalancing the current dynamics, lack of affordability will continue to weigh on the housing market for the remainder of 2021,” said George Ratiu, senior economist at Realtor.com.

Sources

https://www.marketwatch.com/story/new-home-construction-rebounds-sharplyas-america-faces-dire-housing-shortage-11618577442 https://www.housingwire.com/articles/housing-inventory-is-about-to-get-betterheres-why/ https://africa.businessinsider.com/design/how-2020-broke-the-housing-marketso-many-homes-are-selling-that-we-could-run-out-of/d550b45 https://www.cnbc.com/2021/06/17/why-experts-say-you-might-want-to-waitto-buy-a-new-house.html