sales numbers. Mortgage rates effectively doubled in the first half of 2022 (the only time in U.S. history that mortgage rates doubled in a calendar year, according to Freddie Mac), and haven’t dropped much below 7% since then. This made purchasing a home much more expensive and also locked millions of potential home sellers out of the market since they simply couldn’t afford to sell a home they’ve financed at 3.5% and trade it in on a more expensive home with a 7% mortgage. These factors have kept the inventory of homes for sale at or below a three- month supply—roughly half of what would constitute a balanced housing market—and tilted things dramatically in favor of sellers. That, in turn, has resulted in home prices rising by almost 7% in the past year despite higher mortgage rates, according to Fannie Mae. The combination of higher prices and higher interest rates means most prospective homebuyers across the country simply can’t afford to buy a house today. According to a recent analysis by the Atlanta Federal Reserve Bank, purchasing a median-priced home today would eat up almost 42% of the income of someone making a median salary. That’s well above the 28-30% most experts believe is the upper percentage limit of household income that should go toward housing. New home sales have fared slightly better than existing homes for several reasons. First, they’re more available. There’s roughly a nine-month supply of these homes for sale. Second, prices have dropped a bit: June estimates from the U.S. Census Bureau show new home sales prices down 2.6% year- over-year. Third, builders have been offering major concessions, including paying points at closing to buy down the mortgage rate for the buyer.
... Around four million in 2023 [marks] the lowest number of homes sold in the United States in the past 25 years.”
buyers took advantage of the low rates, along with millions of homeowners who refinanced into much lower-rate loans. Now all of those millions of homeowners are locked in by those rates and are sitting on the sidelines rather than selling their homes, keeping inventory levels suppressed. Although there will always be people who feel like they must sell (e.g., households where there’s a birth or death in the family, a marriage or divorce, a job transfer or job loss, or a retiree ready to downsize), these numbers simply aren’t large enough to meet market demand. And this demand is based purely on demographics: The country has the largest number of young adults between the ages of 25-34 in its history—the prime ages for household formation and first-time home purchases. Builders, who were largely AWOL for a decade following the Great Recession, have finally started ramping back up. Despite headlines describing lower housing starts, builders broke ground on 5% more single-family homes in June than they did a year ago (the overall decline is almost exclusively fewer multifamily housing starts).
Still, even new home sales forecasts have declined recently, from an estimated 700,000 sales this year to below 650,000. This lower number would still represent over 14% of total sales in 2024, which is a higher percentage than usual. YOU CAN’T BUY WHAT’S NOT FOR SALE Sometimes numbers can be misleading. Recent reports show the inventory of homes for sale in July was up 40% from last July. Technically, that’s true; but it’s mostly an indication of how extraordinarily low inventory was last year. According to Altos Research, there were roughly 635,000 homes for sale in mid-July, up 40% from July 2023, but down from nearly one million homes for sale in July 2019, and almost 1.2 million in July 2015. The market has been undersupplied since the onset of COVID-19, when the Federal Reserve cut the federal funds rate to zero, and the mortgage industry responded by cutting the rates on 30-year fixed-rate loans to historically low levels, sometimes as low as 2.5%. This created a boom in demand, far outstripping supply, and led to home prices escalating rapidly. Millions of
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