The U.S. housing market has regained close to $3 trillion in value following the industry slowdown over the past year, providing a snapshot of a real estate sector that is a boon for sellers and a challenge for buyers.
Homeowners are refraining from erecting for-sale signs on their front lawns because they "scored an incredible deal during the pandemic: a 3% mortgage rate for the remainder of their 30-year loan," says Redfin Economics Research Lead Chen Zhao.
"Now they’re staying put because moving would mean taking on a rate that’s twice as high," Mr. Zhao said in a statement. "This means buyers who are in the market now are duking it out for a very small pool of homes, preventing home values from plunging."
In the first half of 2023, just 1 percent of all U.S. homes exchanged hands, the lowest percentage total in a decade.
Indeed, there has been a divergence in the housing activity data. Existing home sales tumbled 2.2 percent in July, while new home sales surged 4.4 percent. Some housing economists believe this trend in the resale market will persist in the coming months.
"With an ongoing tight supply of existing homes for sale and the recent rise in 30-year fixed-rate mortgage rate to around 7%, we expect home sales in 2023 to remain near the lowest annual level since 2009," Fannie Mae economists said in a report. "Regardless of whether a soft landing is achieved over the coming year, we expect existing home sales to stay subdued and within a tight range."
Daniel Del Pozo, a local real estate agent in Las Vegas, thinks "two overlapping patterns" are prevalent in the current real estate landscape.
"The first being that many are finally getting over the 'Real Estate Headlines' fatigue and accepting the new normal of mortgage rates and supply challenges," Mr. Del Pozo told The Epoch Times. "The second being the 'calm before the storm' of buyers that are accepting current rates and willing to refinance down the road, but also include buyers that are frothing at the mouths for rates to drop even a half percent."
Housing Shortages AheadIn recent months, industry experts have warned that the country is facing a dire housing shortage, weighing on affordability for middle-income families trying to get their feet in the door. Assuming a 20 percent down payment, monthly mortgage payments have climbed about 40 percent from a year ago for a median-priced new and existing home. In addition, the typical home sells for about 40 percent more than before the pandemic, while the median home price is between four and five times the average buyer's gross income.
The upward trajectory in prices has resulted from two factors: mortgage rates and supply.
Compared to July 2019, housing inventory was down 36 percent, and existing home sales were down 40 percent last month.
Over the last 12 months, new housing construction levels have been sluggish, with housing starts tumbling eight of the last 12 months. The paucity of new builds, which has not kept up with the pace of population growth and matched property demand volumes, has contributed to the housing shortage.
But why are fewer residential properties being constructed?
The cost of construction materials, from concrete to lumber, has played a role in the market by raising the price of a new home or postponing residential projects. Labor costs and skilled shortages have also added to the challenges faced by the industry, says Robert Dietz, the chief economist at the National Association of Home Builders.
State and local regulations, such as zoning laws and building codes, have limited the supply of affordable housing and drove up the cost of new construction. It is estimated that regulatory costs add about one-quarter of the purchase price of the typical single-family home.
"The supply of the real estate market is relatively inelastic, especially with rising construction costs and higher mortgage rates," Tenpao Lee, professor emeritus of economics at Niagara University, told The Epoch Times. "Lower mortgage rates and construction costs will facilitate more housing supply. Demographical movements since the pandemic will also expand many local markets geographically."
Price ForecastsLast week, Fed Chair Jerome Powell warned in his keynote address at the Jackson Hole economy symposium that the central bank could keep raising interest rates because inflation remains "too high." If the institution pulls the trigger on more rate hikes, it will continue to lift mortgage rates. Whether this will affect sales activity and home prices remains to be seen.
A chorus of housing economists has released outlooks for the U.S. housing market for the rest of 2023 and next year.
"The tight inventory conditions and the persistence of elevated mortgage rates are also expected to continue to limit sales volume in the months to come," they wrote.
The AEI Housing Center is penciling in a 6 percent increase in home prices this year and a 7 percent spike in 2024.
"The new normal of where rates are and the control that sellers currently have are dictating where the market currently stands," added Mr. Del Pozo. "If sellers can be shown a little more light at the end of the tunnel, they’d most likely be more willing to list their home and thusly increase supply."