The housing market has been short of stocks long before the pandemic. Unfortunately, we are still a long way from the end of the problem – but the effects of the pandemic seem to be finally subsiding.
Home sales rose in July
New data released by the National Association of Realtors (NAR) found that existing home sales improved a modest 2% in July, the second straight month of growth. The current seasonally adjusted annual rate is 5.99 million.
Sales increased by 1.5% compared to last year’s hot summer.
NAR Chief Economist Lawrence Yun said: “We are seeing that inventories are starting to rise, which will reduce the intensity of several offers. Much of the growth in home sales is still taking place in the upper markets, while the mid to lower ranges are not seeing as much growth as there are too few starter properties available. “
Housing has been difficult for low-income Americans since the pandemic began. Prices have accelerated dramatically and many families have suffered disproportionately large financial losses from the pandemic. The reality is that many potential homebuyers plan to put themselves out of the market until prices come back down. In fact, as of July, only 30% of the market was made up of first-time home buyers, a cohort that historically represents about 40% of the market.
Bidding battles still take place on a regular basis. According to June data, 89% of homes were sold in less than a month – a huge increase from 56% in June 2019. In addition, homes were on the market 10 days less or 17 days less compared to June 2019. Sellers had almost twice as many offers, a total of 4, to view compared to then.
The Redfin Buyer Demand Index shows almost the same level of demand as it did last summer. It’s important to note, however, that the index has declined steadily since its all-time high in February. Although it’s still nearly 50 points higher than it was in June 2019, it’s declining.
Which factors ensure an increased supply?
We’re still a long way from meeting demand, but a couple of things are balancing the ball.
Firstly, with the rapid spread of the delta variant, there is always the potential for botched business due to increasing cases and disruptions. Danielle Hale, Chief Economist at Realtor.com said, “Sustained economic recovery is key to maintaining sales momentum and anything that disrupts progress, such as rising Covid cases, could throw home sales off track. “
COVID-19 will not be the only reason for increased supply, but it will be a factor.
Second, timber prices have continued to fall and are now in their eleventh week of decline. Since hitting an all-time high of $ 1,515 per thousand board feet, prices have fallen 74% to $ 399 by last Friday.
While there won’t be an immediate impact on the consumer side of the market, the return in wood prices prior to the pandemic provides an incentive for builders who have defaulted due to rising costs.
Wood isn’t the only building material used in house building, but it is an integral part. The other concern is the prices of wire, OSB, and other materials, which are still near the peak.
Regardless, a decline in lumber will bring some home builders back.
Third, we are simply seeing a decline in buyer demand, which in turn translates into sales and inventory gains.
Of course, while the demand is still sky high, as mentioned earlier, the economic curve will increase home sales.
Whether lumber, uncontrolled increase in value that drives many potential buyers out of the market, wages war or insufficient wage growth to support current market prices – demand is slowly declining.
Where are we heading?
We don’t know where the decline in demand will lead. We are still missing millions of new apartments that we need to catch up. It is likely that we will remain in a seller’s market until these units appear, whenever that may be.
It is also a question of government and politics. Some local and state governments have strict regulations and environmental procedures in place that make it difficult to overcome red tape.
California, for example, recently mandated solar panels and battery storage as a requirement for most new high-rise residential development projects. In America’s most expensive housing state, this type of legislation makes it difficult for home builders to afford and profit from projects, which deter them and send them to more lucrative markets with fewer tires. Builders have to increase unit prices to cover costs, which is compounding the affordability crisis.
This is only an example. There are myriad other regulations and laws that have dramatically increased property prices in California and an affordability issue not found anywhere else in the country.
Going forward, it will be interesting to see how governments react to housing problems and whether the economy continues to recover at a reasonable pace or is not meeting its targets.