This is certainly a strange real estate market. To my knowledge, we’ve never had a situation in which the real estate market slowed down because there are not enough homes for sale. Normally, a slowdown in the real estate market is caused by a lack of demand. However, we have plenty of buyers, just not enough homes.
The result of this unique market?
First, home prices are steady, or increasing slightly despite the slowdown in sales. Single-family home prices increased 3.0 percent nationwide from Q2 2022 to Q2 2023. It feels like home values rose more than this in the metro Atlanta area.
Secondly, new home sales are flourishing because of the lack of existing homes for sale.
All of this leads to the next question – where does the real estate market go from here? The future direction of interest rates will be one barometer of the future. We have gotten some good inflation news recently and another set of inflation reports are being released this week. If mortgage rates come down a bit as inflation abates, more existing homeowners may be inclined to list their homes. Mind you, we are not expecting rates to fall back to their lows of the pandemic (more on this next week). Ultra-low mortgage rates will not be necessary to get potential sellers to act.
What are some examples of homes coming on the market? It all revolves around the phrase “life moves on:”
I’ve discussed how Baby boomers want to age in place. While true, the oldest baby boomers are approaching 80 years old; meaning, their homes will be coming onto the market.
Millennials who purchased starter homes are growing their families. Again, life moves on and so will homeownership needs.
Remote work is enabling some who are younger to move into their retirement homes before retirement.
One thing for certain, even with more listings, there is a shortage of homes today and this will cause demand to be strong for the foreseeable future.
Yes, the market is slow, and yet people are still looking to purchase their next home. If you are looking to purchase in the state of Georgia, contact me today! In a few minutes I can have you ready to make an offer on your next home!
First-time homebuyers have returned to the housing market. The share of buyers purchasing a home for the first time rebounded to pre-pandemic levels, now representing 45% of all buyers (up from 37% in 2021 per Zillow’s 2022 Consumer Housing Trends Report).
This is primarily attributed to a cooling market, allowing new buyers to survey their housing options. The share of first-time buyers plummeted during the pandemic, as first-time buyers lost out to older, repeat buyers who were able to tap the equity in their existing homes and use cash to make a stronger offer.
This also feeds into my post from last week… less competition for homes makes it easier for first time home buyers to get into their own home!
“First-time buyers now appear to be making relative gains as high mortgage interest rates disproportionately encourage current homeowners to stay put,” said Manny Garcia, a Zillow population scientist. “While rising mortgage rates are hurting affordability for all buyers, first-time buyers may be less deterred by higher rates because they’re comparing a monthly mortgage payment to what they’re paying in rent.”
As mentioned countless times on this blog, it is definitely cheaper to own than rent in Georgia!
A downside to this? While there are fewer buyers overall, first-time buyers may find more competition for starter homes. This trend will only worsen as the mood shifts to it being a “good time to buy a home.” No one knows when the sentiment will shift, but it will. Just look at how quickly the market cooled. Homes were flying off the market and then precipitously dropped from May to July. The housing market will come roaring back once people believe it is a good time to buy.
Given the current market, it is a good time to get ahead of the curve. Mortgage rates are higher now than in early 2022, but inventory levels are still tight. This means now is a great time to buy a home as the competition is lower than normal. If you are buying in the state of Georgia, contact me today. I can get you ready to make an offer on a home in just a few minutes!
This truly is a problem for those who want to own a home, and no one is talking about it… as said in the video, the National Association of Realtors isn’t and politicians (from either side of the aisle) aren’t either.
I would love to see the data on the number of homes being bought in the $500,000 or less by Wall Street/hedge funds. I expect the figure is at/over 50%. It brings up a host of questions no one wants to answer:
What is a first time home buyer to do when they are competing against cash offers on a home?
What do middle income buyers purchase?
Does anyone care about affordable housing anymore?
What happens when there is a significant chunk of the population who wants to own a home but is priced out from owning a home?
How do people get ahead if they are being forced to rent (and we know rent goes up every year) due to lack of inventory?
Home ownership is a major wealth building tool, which is why many people want to own a home. What do people do? I can tell you as I’ve seen it over the past few years. They miss out on lots of offers, are forced to over pay for the home, and take risks when buying the home such as waiving inspection rights and/or buying homes sight unseen.
I’m not smart enough to know the solution to the situation. That said, a pause of Wall Street/hedge funds being able to purchase homes for a year or two is a good idea. It would allow everyone to take a deep breath and assess… “is this really what is best for everyone?”
If nothing else, more people need to be talking about this and raising awareness because, as stated in my blog post from April and the video above, right now, no one is talking about it and the potential ramifications we could see from a chunk of the population being frozen out from ever owning a home.
New single family home sales fell for the fourth straight month in April, signaling the end of the recent housing boom.
The US has moved from a housing boom into a “housing correction”, according to Mark Zandi, chief economist at Moody’s Analytics. In an interview with Fortune magazine, the economist said all the evidence shows the housing market has “peaked”.
Zandi’s comments were in response to data which shows the US housing market is cooling down.
US census figures said sales of new single‐family houses in April 2022 fell for the fourth month in a row and were 16.6% below the March rate.
A new report by real estate brokerage Redfin revealed that almost one in five sellers were now dropping their prices – the fastest rate since October 2019.
What is causing this? The shift is mostly attributed to the relatively high-rate environment. Another component is inventory has also been increasing steadily since February, according to Federal Reserve data (although inventory levels are still low!). The economist, who is also a regular contributor to The Washington Post, used the term “housing correction” to mean that the housing boom would end and give way to a period “where home prices will fall in some regional markets.”
Using the word “regional” is important in the quote. Some areas of the country may not see a big fall in prices. For example, the metro Atlanta area may escape a significant price correction due to lower than ideal inventory levels and people are still moving into the metro Atlanta area. This new phase of the market will not be nationwide like the correction of 2008. We won’t see housing prices dropping 50% (or more) across the entire country.
Lastly, he went on to predict that year-over-year home price growth would flatline over the coming 12 months, which would mark the worst period for the sector since 2012. He also predicted in some overvalued markets home prices could decline by between 5%-10%.
We are in a new phase of the housing market, so what should a buyer do? It depends on how long one plans to own a home. If a buyer is looking at a short term purchase of just a few years, this could be a risky time to buy. On the other hand, if you’ve been looking for a year, need a larger home for an expanding family, and plan on staying in the home for 5-10 (or more) years, you would see home values recover and exceed your initial purchase price over that time frame.
Lastly, I haven’t touched on the “supply and demand” aspect of the market. There are still more buyers who want to own a home than there are homes to purchase. The supply and demand component should provide a floor for home values.
It is definitely an interesting time. If you are buying a home in the state of Georgia and want to go over pros and cons of buying, contact me today. I can help get you going on a TBD underwrite to allow your offer to stand out from the crowd. Even with all of this data showing the housing market is slowing, homes are still getting multiple offers! Meaning, there is still quite a lot of demand and not enough supply of homes out there to purchase.
We’ve all seen articles/heard stories about mortgage rates going up this year. While the Federal Reserve rate increase is only 0.250 this year (so far!), mortgage rates are up significantly more than 0.250 on the year. Will this slow down the housing market?
In a word – no. In two words – not really. In a sentence – even with higher mortgage rates, the housing market is expected to remain strong and even see another year of double digit appreciation in home values.
I know….
…. but the lack of inventory is driving the housing frenzy. Higher rates will do a couple of things.
Anyone not 100% serious about buying a home will probably walk away. If the idea was ” I want to buy a home while rates are at historic lows, but I do not really need to move,” those potential buyers are probably getting out as historically low rates are gone.
First time home buyers are being squeezed out. Many first time home buyers do not have the assets for bidding wars. They were also stretching their budgets thin to compete with higher home prices. With rates higher, many are just now priced out of the market. It is incredibly frustrating for first time home buyers.
How does this trickle down to the market? I think higher mortgage rates will simply take a seller receiving 20+ offers, perhaps the seller receives 10-15 offers. There are so many buyers who put off buying a home in 2020 due to Covid… then in 2021 due to the housing market being so tough… there are plenty of buyers still out there to buy homes. Inventory levels must improve for the situation to improve.
To borrow from an insurance company’s commercial… unless you’ve been living under a rock, you know there is a supply problem with the number of homes available to purchase. While builders are back in full swing, there is still a major deficit in the housing inventory.
What are some things the government (federal and/or local) could do to help ease the housing shortage? Here are three things with something happening (at least in Canada), something that could happen, and something I wish would happen.
Last week, Canada banned foreign home buyers from purchasing homes in Canada for two years (exceptions made for permanent residents in Canada). Canada added a number of measures (some of the measures are already in place here) to help tone down speculation and demand. While the number of homes purchased by international buyers isn’t huge, with the current housing inventory levels, this falls under the “every little bit helps” category.
Could re-zoning be a solution? Enterprise Community Partners believes so. They said re-zoning land to allow low-density multifamily housing could help communities address the negative impacts of exclusionary single-family zoning. In other words, instead of allowing only one home built in subdivisions on larger lots, allow for more areas to have condos and townhomes built on them. As an example, on the street where I live, instead of one single family home, there is room on each lot to build four attached town homes. This solutions has been proposed a lot for California, and could certainly increase the number of homes available to buy (of course, we all still must wait on these homes to be built!).
This falls under the category of reform I would like to see. Given how hot the market is right now, I feel hedge funds/investment firms should not be allowed to purchase homes for the purposes of renting out these homes as an investment for their clients. I am not saying this should be permanent, but could we at least get a two year moratorium on it? If you do a search for “hedge fund housing,” you’ll see countless articles regarding hedge funds buying homes and driving up home prices across the country. This is helping to make housing unaffordable, which dramatically impacts first time home buyers who need lower price points/do not have a ton of assets for a down payment or bidding war. If an individual wants to buy a home to rent it out, that is one thing. An investment firm buying an entire new construction subdivision to rent the homes out is different, and definitely problematic.
There are several reasons we are in the situation we are in right now in terms of housing inventory (few homes being built during the Great Recession is the biggest reason), but doing some of the things listed in this post could only help the situation.
Several factors contribute to the squeeze on inventory levels. Over the past several months, I’ve covered a lot of them. In several posts, I mention how Baby Boomers continue to hold onto their homes instead of downsizing. A recent study from American Advisors Group (AAG) supports this trend.
Not only do seniors (60-75 for the purposes of AAG’s survey) have a great deal of wealth/equity in their homes, they also have significant sentimental value. This contributes to their reluctance to let go of the home and/or downsize even in such a hot seller’s market. Here are some quick takeaways from their survey:
Most of those surveyed have no intention of selling their home or ever moving.
Their data indicates over 80% of seniors would like to stay in their homes for the rest of their lives.
92% of seniors said they would prefer to live their later years in their current home instead of moving to an assisted living facility.
Their findings indicated the comfort, safety and independence of their home outweighs the desire to move/downsize.
“Our studies have shown that seniors in this country have a strong attachment to their home and the pandemic only strengthened that bond,” said AAG Chief Marketing Officer Martin Lenoir.
Unlike previous generations that gradually moved into assisted living facilities, retirement communities, or downsized to condo living, the current generation (thus far) is showing no signs of doing this. The lack of homes available for resale continues to put a strain on inventory levels.
It is still a seller’s market, and we are not approaching a balanced market yet. The good news is inventory levels are a little higher and could continue to improve.
In my previous post, I discussed how we will likely not see a jump in foreclosures due to those coming out of pandemic related forbearance programs. Instead, might we see an increase in inventory levels? An analysis by Zillow seems to indicate we will.
Zillow believes around 850,000 homeowners will come out of forbearance this fall
Over the past 12 months, their study showed about 25% of those coming out of forbearance listed their home for sale.
the increase could be about 0.5 months of additional inventory (a 15% increase)
this computes to over 200,000 homes nationwide
While an extra half month of inventory does not seem significant, in this extreme seller’s market, every bit helps!
Also, unlike 2008 when financial conditions and a souring housing market pushed many homeowners into involuntary foreclosure, strong equity growth and a robust sellers’ market are likely to ensure that even distressed homeowners have more options. Again, pointing towards people listing their homes for sale (versus foreclosure).
Those of you out there looking for a home… more inventory is on the way!
The extreme seller’s market continues. If you are looking for a home loan in Georgia, contact me today. I can get you prequalified in minutes, pre-approved as soon as I can review your income/assets, and even a pre-underwritten approval in a few days.
Mortgage forbearance programs are coming to an end. Many homeowners who were able to hold off on mortgage payments will now be required to start making them again – even if their personal economic situation has not improved from the fallout from Covid-19.
Should we expect to see an increase in foreclosures like we did over a decade ago? Experts do not expect a large increase in foreclosures, and feel the concern over a foreclosure spike is wildly overestimated.
Why? Equity and inventory.
Housing Crisis: homeowners had no equity due to loan programs offering no money down (some allowed a loan to value over 100%), home values plummeted, so many were underwater on their homes, and there were not many people out looking to purchase a home.
Today: if you read The Mortgage Blog (or the news), you know we are seeing historic lows on inventory levels. Because of this supply-and-demand cycle, home values jumped over the past two years. There are more than enough people out there willing to buy a home.
The dynamics are completely different this time around. While many people walked away from underwater properties during the housing crisis, many home owners have tens of thousands of dollars in equity now. They will not just walk away from that kind of money. Expect more homes to become available to purchase instead of going into foreclosure.
It is still a competitive market out there. If you are looking for a home loan in Georgia, contact me today. I can get you prequalified in minutes, pre-approved as soon as I can review your income/assets, and even a pre-underwritten approval in a few days.
In another sign the housing market is leading the economic recovery, new homes sales continue to rise – up about 8% on the year.
Since the economy began opening up across the nation, builders experienced a boom in business. Buyers are being driven by dynamics created due to the pandemic:
low mortgage rates
a new focus on the importance of housing (room for work and school from home)
buyers moving from high to lower density areas
Buyers are looking for more space, and more affordable areas to get this space. This is a trend happening across the US from New York, to LA, and even in Atlanta.
Want even more evidence new construction is booming? The market has seen a 34% increase of new construction homes being sold that have yet to be built. Existing completed new construction inventory is low as these new homes are being snapped up quickly!
With new construction homes going quickly, existing home sales will also begin increasing as more homes become available to purchase. With rates seemingly set to remain low for a while, the housing market is soaring!
Ready to get in on the action? Want to be in a new home by the holidays? Before the end of the year? If the home is in Georgia, I can help! Contact me today, and I’ll get you on your way to purchase your new home!
Clay Jeffreys is a Mortgage Consultant with Dunwoody Mortgage Services and a writer for “the Mortgage Blog.” If you would like to be a guest writer for "the Mortgage Blog" please contact Clay for details.
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