The Housing Market: A Tale of Two Cities

The housing market is a complex beast, and understanding its intricacies can be a challenge. In this article, we’ll delve into the current state of the market, exploring the reasons behind the ongoing supply and demand imbalance.

The Current State of the Market

The numbers are telling a story of supply and demand. According to the National Association of Home Builders (NAHB), there is currently a 4.4-month supply of both new and existing homes for sale. This may seem like a lot, but consider that a six-month supply is considered a balanced market between buyers and sellers.

However, the supply of newly built homes appears to be way too high, with a nine-month supply. This is an unprecedented dynamic, driven by the pandemic-driven demand and the subsequent surge in homebuilding.

The Supply Scenario

The supply of newly built homes is increasing, but the existing home market is still struggling. In fact, there is currently a 2.9-month supply of existing homes for sale, according to the NAHB. This is a stark contrast to the nine-month supply of newly built homes.

The gap between the two is due to the unprecedented dynamics of the housing market. The pandemic-driven demand and subsequent surge in homebuilding have created a surplus of newly built homes, while the existing home market is still recovering from the pandemic’s impact.

The Foundation of Today’s Tricky Numbers

The housing market is unlike any other because of the economic forces that have shaped it. The 2005 subprime mortgage crisis led to a massive runup in home sales, homebuilding, and home prices. This, combined with the pandemic-driven demand and subsequent surge in homebuilding, has created a market unlike any other.

Mortgage Rate Mayhem

The current strange divide in supply between newly built and existing homes is also due to roller-coaster mortgage rates. The pandemic-driven lows and subsequent spikes have created a lock-in effect, where millions of borrowers have no desire to move because they would have to trade a 3% or 4% rate on their loans to the current rate, which is around 7%.

This has put builders in the driver’s seat, allowing them to buy down mortgage rates to keep sales higher. However, as mortgage rates continue to rise, the demand for newly built homes is expected to slow, which could lead to a decrease in supply and a subsequent increase in prices.

Growth at the Low End

The supply of homes is increasing most in the lower-end price tier, from $100,000 to $500,000. This is where the bulk of today’s buyers are, and the increasing supply is not enough to meet demand.

Conclusion

The housing market is a complex beast, and understanding its intricacies can be a challenge. The current supply and demand imbalance is driven by the pandemic-driven demand and subsequent surge in homebuilding, as well as the roller-coaster mortgage rates.

As mortgage rates continue to rise, the demand for newly built homes is expected to slow, which could lead to a decrease in supply and a subsequent increase in prices. However, the growth in the lower-end price tier is a sign that the market is slowly beginning to stabilize.

FAQs

Q: Why is the supply of newly built homes increasing?
A: The supply of newly built homes is increasing due to the pandemic-driven demand and subsequent surge in homebuilding.

Q: Why is the existing home market still struggling?
A: The existing home market is still struggling due to the pandemic’s impact and the subsequent lock-in effect of mortgage rates.

Q: What does the future hold for the housing market?
A: As mortgage rates continue to rise, the demand for newly built homes is expected to slow, which could lead to a decrease in supply and a subsequent increase in prices. However, the growth in the lower-end price tier is a sign that the market is slowly beginning to stabilize.

Q: What can buyers and sellers expect in the coming months?
A: Buyers and sellers can expect a continued supply and demand imbalance, with prices likely to remain high. However, as the market continues to stabilize, prices may begin to ease, and the supply of homes may begin to meet demand.

Author: www.cnbc.com

Orginal Source link