When/How will the Housing Market Shift?

When/How will the Housing Market Shift?

With every passing month, home prices are increasing, and prospective home buyers are writing stronger offers to try to compete with the raging demand. The inventory shortage continues to impact this unprecedented market, with seemingly no homes for sale. Yet, the number of sales for the year is trending up compared to 2020 because demand continues to outpace supply.

The hot question amongst buyers and sellers right now is “when will the market shift?” There are essentially 2 fixes that will put supply and demand closer to an equilibrium and slow down the exponentially accelerating prices, but neither are immediate solutions. Supply must go up to meet demand or demand must go down.

Too few houses have been built for the past several years, so new construction alone will not fix the problem in a reasonable timeframe. The obvious way to increase supply is to build more, but even with this, there are endless obstacles that we are seeing to make this happen.

  1.        Land near job centers is scarce, making development more expensive, translating to high prices.
  2.        Labor costs have skyrocketed, in part because the construction labor pool never fully recovered after 2008. Labor costs are also increasing because record low numbers of people are going to vocational school to become a carpenter, electrician, plumber, etc., so the workforce is very quickly aging out and getting smaller.
  3.        The cost of construction materials is going up, in part due to pandemic-induced reductions for what manufacturers can make, also because of many tariffs on lumber imports and extreme weather impacting supplies and warehouses/manufacturing facilities in other climates.

The other way to “fix” supply is to somehow convince more sellers to list their homes. There are a lot of reasons why it seems so many are weary to list now – pandemic fears, concerns about not finding a new place, wanting to capitalize on future price gains, etc. Though, all signs do point to more listings coming this summer with the vaccine roll out and continued rising prices that are putting sellers in great equity positions, but still not enough to keep up with the millennial demand.

Is it possible to reduce demand? The pandemic has driven incredibly high interest from buyers who want more space and privacy. With the stay-at-home emphasis, high-income workers also have more money than ever to put into a house.

Rising interest rates may also be a critical factor to reduce the demand, which translates to higher monthly mortgage payments for consumers. Interest rates are still FAR lower than they have been historically speaking, but to consumers who are used to seeing interest rates sub 3%, these increased rates will mean less affordability and spending power.

Right now, unfortunately, there is no silver bullet, and inventory shortages paired with high demand is likely to stick around for the foreseeable future. It is more important than ever to have a professional on your side to help navigate this market and maximize your potential as a seller or buyer. 

Posted by Alison Crim on
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