More and more Americans are taking advantage of low mortgage rates and buying larger, more comfortable homes to live and work in as the pandemic wears on. However, with this increased demand, the U.S. may soon run out of housing inventory.
After three months of trending upward since the real estate market reopened, existing U.S. home sales reached a 14-year high this August, according to a report by the National Association of Realtors (NAR). And while new home sales were also up, there doesn’t seem to be enough new construction to meet the sudden spike in demand.
In this newly-published report, Lawrence Yun, chief economist at NAR, noted:
“Housing demand is robust but supply is not and this imbalance will inevitably harm affordability and hinder ownership opportunities.”
Houses Sell at Record Speed
August saw the highest sales rate since 2006, as roughly 6 million U.S. homes were sold at a seasonally adjusted annual rate, representing a 10.5% year-over-year increase. According to Bloomberg, sales of new homes also surged, reaching 342,000 transactions this August – another 14-year high mark.
Although newbuilds purchased at the start of the pandemic saw record numbers, newly-built listings fell 33.6% compared to a year ago, as reported by Redfin. This inconsistency signals that construction cannot keep up with demand. What’s more, if houses keep selling at this rate, Bloomberg specialists estimate the inventory of new homes could simply run out in the next few months.
As current homeowners shy away from selling, Zillow economists estimate there are more than 20% fewer houses on the market now relative to 2019. The housing supply is not only kept low by the pandemic-related uncertainty surrounding employment and the economy, but also by the country’s inability to keep up with home building needs, something that has held true for the past ten years.
High Prices Hindering Homeownership
It seems residents looking to purchase new homes are willing to pay more than ever before. As one Baltimore real estate agent told Redfin:
“Buyers are willing to pay more for a house than I’ve ever seen — I’m talking $30,000 to $50,000 over the listing price. They’re desperate because homes are flying off the market so quickly. I’m selling all of the homes I’m listing within three days.”
Low mortgage rates, which are among the lowest ever offered to date, support this eagerness to buy a home. According to the Mortgage Bankers Association (MBA), mortgage applications are actually up 22% compared to a year ago. However, despite these favorable conditions, low supply has led to skyrocketing home prices, smashing the dream of homeownership for many Americans.
Low mortgage rates had given buyers an additional 6.9% in purchasing power by July, as per Redfin. Still, real estate prices were up even more, by 8.2% relative to 2019, since the market witnessed the highest two-month appreciation in the last three decades. NAR also reported an 11.4% year-over-year increase in home prices, with the national median reaching $310,600 this August.
According to a new report by Attom Data Solutions, roughly two-thirds of the U.S. are currently witnessing real estate prices less affordable than historical averages. Home price appreciation has also outperformed average weekly wage growth in most of the country. As Todd Teta, chief product officer at Attom puts it:
“In a year when nothing is normal, owning a single-family home has become less affordable to average wage earners across the U.S., despite conditions that would seem to point the opposite way.”
But mortgages are also harder to obtain, with lenders enforcing stricter standards because of the recession caused by the pandemic. According to the MBA, it’s actually more challenging to take out a mortgage now than any other time in the past six years.
In the meantime, the lucky few who managed to purchase homes in these interesting times are already experiencing buyer’s remorse. A LendEDU survey published in late August found that a whopping 55% of new homebuyers regret jumping the wagon, mostly (30%) due to financial reasons.
Source: Business Insider