When will the housing shortage end?

Isn’t that the million dollar question? I wish I knew the exact answer. A safe answer is not in the next couple of years.

I’ve talked a lot about the lack of homes for sale. The same issue is in the rental market too. Reflecting the unprecedented housing shortages across the United States in the post-pandemic market, U.S. vacancy rates hit their lowest readings in decades in 2021. According to NAHB’s analysis of the 2021 American Community Survey (ACS), rental vacancy rates reached a new low of 5.2%, the lowest levels recorded by the ACS since the survey started generating these data in 2005.

Additionally, NAHB’s forecast indicates the balancing of the market will take years to correct itself, and will take place between 2025 and 2030. Even on their short term projection, it is still two years away.

If the rental market is stretched, and we’ve already discussed the shortage of homes being built/for sale in my February series, what should a buyer expect in 2023? Glad the question was asked 🙂

Realtor.com 2023 housing forecast says 2023 will offer buyers less competition on the number of for-sale homes. Compared to the wild ride of the past two years, 2023 will be a slower-paced housing market, which means drastic shifts like price declines may not happen (if at all) as quickly as some have anticipated.

Going back to the Zillow report referenced in my first post this month, it noted, while national home value declines from peak levels have been minimal, some markets have seen significant changes. Atlanta isn’t one of those markets. People are still moving into metro Atlanta, and there are not enough homes to buy for the number of people wanting to own homes in this market. Our housing prices have a floor, so there is no need to fear a 2008 home value crash.

In all of my posts, we are seeing a trend. The housing crunch isn’t changing in the next few years, more buyers will enter the metro Atlanta housing market as the US population continues to move to the southeast, housing prices have a “built in” floor due to supply and demand… the only thing different from the past few years and when the market heats up again is the competition… or lack thereof. Those who got out of the market and quit trying to buy will find it very different now in this cooled/fewer looking for homes market.

I remember speaking with someone is March 2020 saying they wanted to wait until the summer to get a really good deal as the housing market collapsed from Covid. I advised him if he wanted a good deal, he needed to purchase a home in March or April. Why? My thought process then was there was nothing wrong with the economy. When things open up and go back to normal in a month or two, home prices will go back to where they were and we will pick back up where we left off. Other than me being wildly optimistic on when life would go back to normal, when the economy opened up, the “deals” were gone.

I feel we are in a similar window now with fewer buyers making offers on homes. My clients are getting under contract with time for due diligence, appraisal/financing contingencies, the seller giving money for closing costs, and even contingencies to sell a home prior to buying the new home! This is as close to a “buyer’s” market we will see until the housing inventory issue sorts itself out, which is forecast to be years down the road.

Next month – new topics. Promise!

If you’ve read these posts and decided now is the time to buy before everyone else jumps back into the housing market, contact me today (see my banner above for contact info). I’ll get you ready to make offers on homes in no time!

Signs of a More Balanced Market

Once the housing market recovered from its initial Covid-19 shock in 2020, it has truly been a seller-dominated market. The demand for available homes was so great that to win a contract, home buyers had to avoid requesting seller contributions to closing costs, set the financing and appraisal contingencies to zero days or other very short windows, contract to cover some portion of an appraisal shortfall, and often offer a price higher than the home’s list price. The largest appraisal shortfall I saw a buyer willing to cover was $30,000, and I dealt with one home that sold for $110,000 more than its list price.

Higher mortgage rates have changed the housing market in recent months and lowered competition. I am now seeing this trend as I review my clients’ contracts. Some of my clients are winning contracts with offers at or slightly lower than the list price. I have recently seen sellers contributing $5,000 – $10,000 toward closing costs. And all of my recent contracts have included finance and appraisal contingencies of 12 – 21 days.

Since sellers are accepting buyer contingencies again, now seems like a great time to explain these contingencies. Both the finance and the appraisal contingencies protect the buyer’s earnest money for a set number of days. The buyer typically wants a longer contingency period to have more earnest money protection. The seller wants the contingencies as short as possible. Here’s how they work.

The finance contingency is a binding contract term giving the buyer a specific number of days to obtain financing approval. If the buyer’s loan application is denied and the buyer delivers a lender’s loan denial letter (documenting the loan type, interest rate, and down payment percentage specified in the contract finance exhibit) within that time period, the buyer is contractually entitled to an earnest money refund. If the buyer submits a loan denial letter after the contingency period has expired, the buyer forfeits the earnest money – the contract permits the seller to keep it.

The appraisal contingency is a binding contract term giving the buyer a specific number of days to obtain an appraisal on the subject property. If the appraisal report specifying a value less than the contract price is delivered within the contingency time period, the buyer is contractually entitled to an earnest money refund if the parties cannot negotiate a compromise agreement. If a low appraisal is delivered after the contingency expires, the seller can keep the earnest money if the buyer terminates the contract.

At Dunwoody Mortgage, we meet contingency deadlines! If I tell you to put “X” number of days for the contingency in the offer, we will get the job done on time to meet the contingency.  Dunwoody Mortgage prioritizes delivering loan approvals and appraisals within the contingency period helping clients manage their financial risk and the associated stress.

Housing Inventory Rises

A recent report by the real estate firm Redfin shows that the national inventory of homes for sale increased by about 2% as compared to June 2021. June 2022 represents the first month of a year over year home inventory increase since July 2019 – that’s almost 3 years!

The report indicates that the inventory increase resulted from a combination of increasing home prices, rising mortgage interest rates, and a slowing economy. While the national home-sale price increased 11.2% in June, that marks the lowest annual increase in almost two years. June’s home sales decreased by 15.5% year over year, representing the largest decline since May 2020.

While home prices and interest rates have risen dramatically, current homebuyers now face reduced competition and a market that is becoming more balanced, as compared to the strong sellers’ market of the last few years. The reduced competition can help homebuyers make less risky offers by including longer due diligence periods and appraisal contingencies.

Other key national statistics from Redfin’s June report include:

• Pending home sales declined 12.6% year over year.
• New home listings decreased 4.4% relative to June 2021.
• Months of available housing supply increased from 0.5 to 1.7 months.
• Percent of homes selling above list price decreased about 1% from June 2021. But the percentage of homes selling above list price was still 55.5%.

In addition to decreased competition, homebuyers have experienced a decrease of mortgage interest rates in recent weeks. I have noticed rates drop by more than one-half of one percent for some well-qualified buyers relative to just a few weeks ago.

Given this information, I think now is a great time to search for homes. Homebuyers can take advantage of the recent dip in interest rates combined with the confidence of making less risky offers now. The stress of competing by skipping home inspections, appraisal contingencies, and offering tens of thousands of dollars over list prices appears to be fading a bit now.

If you want to buy a home in the State of Georgia, the benefit of starting the process now is looking better and better. Give me a call and we can evaluate your situation and loan options, and lay out a plan for you to buy your dream home now while the market is improving.