Despite mortgage rates doubling in the past year, taking a significant toll on the ranks of would-be house hunters, home prices have remained stubbornly high in most of the country. The reason? Even with the decreased demand, there are still not enough houses on the market to satisfy the needs of Americans. Bloomberg reported that active listings fell 7.1% on a seasonally adjusted basis in May and were down 38.6% from pre-pandemic levels. A mere 1.4 million homes were up for sale in May, the lowest number since 2012.
There are several factors behind these disappointing numbers. Current homeowners are more likely to make do despite their changing needs to avoid renouncing their relatively affordable mortgages contracted at a lower rate. More importantly, the United States is suffering from a significant housing crisis that predates the pandemic, although the sudden increase in demand exacerbated it.
In the wake of the 2008 housing market collapse, the construction industry suffered a major hit it never recovered from. Between a dwindling qualified workforce, rising material costs, and increasing difficulties dealing with local regulations and zoning laws, contractors focused their efforts on higher-end, custom-built homes that are less risky and more profitable than larger scale projects, leaving the United States short of over 5 million houses to satisfy demand. However, May ushered in some signs of hope for the market crunch.
Housing Market Relief
New home starts were up 21.72% in May and up 5.7% from last year. Single-family housing starts increased 18.5% on a month-over-month basis to a seasonally adjusted annual rate of 997,000, according to the U.S. Census Bureau and Department of Housing and Urban Development, marking an 11-month high and far exceeding economists’ projections.
“The single-family housing starts of one million were very rare in the 10 years prior to the pandemic,” said Lawrence Yun, chief economist of the National Association of Realtors. “Therefore, the latest figure of one million reflects the builders’ confidence in making a relatively easy sale when inventory is offered to consumers.”
“Shelter cost growth is now the leading source of inflation, and such costs can only be tamed by building more affordable, attainable housing, for sale, for rent, multifamily and single family,” said Robert Dietz, Chief Economist for the National Association of Home Builders.
We’ll keep you posted on this ever-changing market. In the meantime, if you’d like more information about buying/selling or refinancing in today’s market, give us a call or drop us an email.
