Buyer demand is still outpacing the number of available homes for sale
One of the major questions real estate experts are asking today is whether prospective homebuyers still believe purchasing a home makes sense. Some claim rapidly rising home prices are impacting demand and, by extension, leading to the recent slowdown in sales activity. However, demand isn’t the real issue. Instead, it’s the lack of supply (homes available for sale).
An article from the Wall Street Journal shows this is true for new home construction:
“Home builders have sold more homes than they can build. Now they are limiting their sales in an effort to catch up.”
The article quotes David Auld, CEO of D.R. Horton Inc. (the largest homebuilder by volume in the United States since 2002), explaining how they don’t have enough homes for the number of buyers coming into their models:
“Through our history, to have somebody walk into our models and to tell them, ‘We don’t have a house for you to buy today’, is something that is foreign to us.”
Danielle Hale, Chief Economist for realtor.com, also explains that, in the existing home sale market, the slowdown in sales was a supply challenge, not a lack of demand. Responding to a recent uptick in listings coming to market, she notes:
“. . . if these changing inventory dynamics continue, we could see a wave of real estate activity heading into the latter part of the year.”
The buyers are there, we just need houses to sell to them
If the slowdown in sales was the result of demand waning, we would start to see home prices beginning to moderate – but this isn’t the case. As Mark Fleming, Chief Economist for First American, explains:
“There’s a lot of conversation around rising prices and falling quantity in the housing market, and there’s this concept, or this idea, that it’s a demand-side problem . . . . But, if demand were falling dramatically, we would actually see less price pressure, less home price growth.”
Instead, we’re seeing price appreciation accelerate throughout this year, as evidenced by the year-over-year percentage increases reported by CoreLogic. Home price growth in July soared a record-shattering 18% year over year, the highest price appreciation recorded since CoreLogic began tracking the metric in 1976:
- January: 10%
- February: 10.4%
- March: 11.3%
- April: 13%
- May: 15.4%
- June: 17.2%
- July: 18%
The median sale prices in Bend and Redmond have been stabilizing around $630k to $650k in Bend and $436k to $450k in Redmond over the past several months. Since September 2020, the median sale price in Bend and Redmond increased 16% and 24% respectively.
Inventory levels are tight, at just under a month in Bend, while the median marketing time to sell a single-family home in Bend and Redmond has been less than a week for nearly a year, since the last quarter of 2020. (Source: The Beacon Report – September 2021)
CoreLogic predicts such growth will slow to around 2.7 percent by July 2022 as the number of new listings once again goes up. At present, however, buying a home is proving to be out of reach for many, with rapid appreciation creating major challenges for first-time buyers and anyone competing with all-cash multiple offers. As some hold off on buying, market stagnation is a predictable result, according to the CoreLogic analysis.
“Home price appreciation continues to escalate as millennials entering their prime home-buying years, renters looking to escape skyrocketing rents and deep-pocketed investors drive demand. On the supply side, it is also the result of chronic under building, especially of affordable stock. This lack of supply is unlikely to be resolved over the next 5 to 10 years without more aggressive incentives for builders to add new units.” -Frank Martell, President and CEO of CoreLogic
There’s a shortage of listings, not buyers, and there are three very good reasons for purchasers to still be interested in buying a home this year:
1. Affordability isn’t the challenge some are claiming it to be
Though home prices have risen dramatically over the last 18 months, mortgage rates remain near historic lows. Because of these near-record rates, monthly mortgage payments are affordable for most buyers. While homes are less affordable than they were last year, when we adjust for inflation, we can see they’re also more affordable than they were in the 1970s, 1980s, 1990s, and much of the 2000s.
2. Owning is a better long-term decision than renting
A recent study shows renting a home takes up a higher percentage of a household’s income than owning one. According to the analysis, here’s the percentage of income homebuyers and renters should expect to pay now versus at the end of the year.
3. Owners build their wealth, renters build their landlord’s wealth
Whether you’re a homeowner or an investor, real estate builds wealth through growing equity year-over-year. If you own, your household is gaining the benefit of that wealth accumulation. Fleming says:
“The major financial advantage of homeownership is the accumulation of equity in the form of house price appreciation . . . . We have to take into account the fact that the shelter that you’re owning is an equity-generating or wealth-generating asset.”
Odeta Kushi, Deputy Chief Economist at First American, elaborates in a recent article:
“. . . once the home is purchased, appreciation helps build equity in the home, and becomes a benefit rather than a cost. When accounting for the appreciation benefit in our rent versus own analysis, it was cheaper to own in every one of the top 50 markets, including the two most expensive rental markets, San Francisco and San Jose, Calif.”
Today, that equity buildup is substantial. The National Association of Realtors (NAR) reports:
“The median sales price of single-family existing homes rose in 99% of measured metro areas in the second quarter of 2021 compared to one year ago, with double-digit price gains in 94% of markets.”
In 94% of markets, there was a greater than 10% increase in median price. That means if you bought a $400,000 home in one of those markets, your net worth increased by at least $40,000. If you rented, the landlord was the recipient of the wealth increase.
- Mid Year Market Report | Central Oregon Association of REALTORS®
- Why It’s Important To Price Your Home Correctly In A Seller’s Market
- Dos And Don’ts For Home Buyers In Today’s Real Estate Market
Let’s work together
For many reasons, housing demand is still extremely strong, and as homes come to market, our housing supply can’t keep up with today’s incredible buyer demand. What we need is more supply (house listings) to meet that demand. If you’re thinking of selling, let’s chat: