If you’re in the market to buy a home you know what I mean when I say “Yikes!” First, there are so few homes available, most in the popular price ranges (such as those for first-time buyers), that homes in good condition sell fast… sometimes with multiple offers.
In some areas we saw 53% of contracts received multiple offers. And to make matters tougher, Florida’s percentage of cash sales jumped from 30% to 38% MOM, fueled by in-migration and investors.
Tight housing inventory drives up home prices. Now, if you’re a homeowner considering selling your home, this is good news because you’ll get top dollar (again, if your home is in good condition). For homebuyers, however, rising home prices are beyond frustrating.
So, how long is this situation going to last and what needs to happen to stabilize this market for buyers?
One thing that would help is for builders to build more new homes. “Single-family home construction is running at the slowest pace since 1995,” says Diana Olick at cnbc.com.
“More housing construction will help — and it has been increasing — but the United States has been under-building for so long that it’ll take years to meet demand, according to Emily Badger with the New York Times.
Why Aren’t They Building?
There are a number of reasons developers have backed off residential construction. Money, of course, is the top reason. But effects of the pandemic, such as the supply chain crunch, are contributing factors as well.
“Builders report shortages of windows, doors, flooring and appliances… and I’ve even heard stories of garage doors that are not going to arrive for months,” Robert Dietzhe with the Home Builders Association tells marketplace.org’s Mitchell Hartman.
Add a worker shortage to the supply chain issues and it’s understandable why the pace of new-home construction isn’t anywhere near where it should be. So less homes on the market equals rising home prices. Period.
“As more skilled workers retire from the industry, not enough young people are coming in,” Ed Brady, CEO of the Home Builders Institute.
Additional challenges to the construction industry include “the pandemic, growing inflation, and the potential passage of all or part of the Build Back Better legislation …” These issues could have a dramatic impact on the construction sector this year,” said American Institute of Architects chief economist Kermit Baker.
Then, there is the existing home market.
When Will Home Prices Come Down?
Most of the factors are encouraging a rise in home prices. So, if one factor changes, it may help the others to loosen their grip on the market. These factors include (but aren’t limited to):
- Not enough homeowners selling their homes
- Soft supply of newly constructed homes
- High demand for homes
- Low mortgage rates
- An improving labor market
The factor with the most impact right now is that there aren’t enough homes for sale to meet the demand. In other words, inventory is low. For example, in November 2020 in South Florida, there were over 45,000 properties available. Today there are just 15,875. That’s an inventory drop of over 65%.
Even with mortgage rates rising this year, there won’t be enough homes to meet the demand of homebuyers left in the market, according to Ally Yale with The Motley Fool.
“… it’s likely that home prices will start to taper off as we get further into 2022,” she notes. “Make no mistake, though: home prices aren’t suddenly going to drop,” this year.
As you can see, when home prices will reverse their ascent is anybody’s guess. There are just too many variables to allow for an accurate prediction. Since I keep my eye on the economy, however, keep checking back for regular updates.
Or if you are preparing to make a purchase this year and want to know all about the local market of, or surrounding Delray Beach, please join my weekly eLetter. To do so, click here and I’ll make sure you begin receiving my local insights and market updates this week.
And I’ll leave you with this – to lose 65% of our local inventory, or about 30,000 properties, it won’t reverse overnight. That means we have to increase inventory by over 200% to get back to inventory levels of mid-2020. This is a stunning number to digest. Once this sinks in with you, you’ll agree home prices will remain high for longer than most think.
