It's a red-hot real estate market — so why are home sales plunging?
S E E D E D C O N T E N T
The number of existing home sales plunged in April, surprising economists who had expected last month's drop to moderate. Real estate experts say this is an indication that shortages of everything from lumber to kitchen appliances are reverberating throughout an already red-hot market — good news for sellers, but a situation that threatens to price out a growing number of buyers, despite mortgage rates that remain near historic lows.
Existing home sales fell from an annualized 6.01 million to 5.85 million, the National Association of Realtors said on Friday. The consensus had been for a tiny uptick to 6.02 million.
The plunge can be attributed to a lack of inventory, said Nick Bailey, chief customer officer at RE/MAX. It's a perfect storm for home buyers: Builders are contending with widespread and unprecedented supply chain choke points just as the swelling population of millennials is seeking to transition into larger homes to accommodate families.
Builders are facing shortages from lumber and copper to PVC pipe and kitchen appliances.
"It's the millennial population driving this market," Bailey said. "A lot of them are turning to new construction, but because of labor and supply costs, builders are being very deliberate about how quickly or how slowly they bring things onto the market." The lumber shortage has been well-documented, but there are a host of other supply chain choke points plaguing home builders, from copper for wiring to PVC pipe — even for often taken-for-granted inputs like kitchen appliances.
This combination of factors means that last year's sharp escalation of home prices is set to continue. According to the National Association of Realtors, the median sales price on an existing-single-family home hit a record $334,500 in March.
"We have a major housing shortage in America," said Lawrence Yun, the trade group's chief economist. The problem predated the arrival of Covid-19, he said, and was greatly exacerbated by a sudden influx of buyers seeking more space while locked down in the early months of the pandemic and a shutdown of construction sites, factories and lumber mills.
"Supply chain issues have added several weeks to the time it takes to build a home," said John Burns, CEO of John Burns Real Estate Consulting. Big builders bid up prices on the items they need for construction and then pass along those costs — and then some — to buyers who are in little position to negotiate given the dearth of available supply, while small builders are often locked out entirely, Burns said.
"Suppliers have to take care of their largest customers first," he said. "The surge in demand that is allowing builders to push price, and putting even more strain on the supply chain as the demand for materials has surged."
Even with much of the American economy returning to normal, those aftereffects will continue to have a long tail, experts predicted. Commerce Department data released earlier this week found that the number of housing starts unexpectedly tumbled to an annualized 1.57 million, compared with expectations of about 1.7 million.
"We've seen a continuation of appreciation in most markets," Bailey said. Too many buyers chasing after too few properties is triggering bidding wars, and, in some neighborhoods, competition is so fierce that many homes are sold before they even hit the market, he said.
According to Zillow, nearly half of the people who sold homes last month accepted an offer within a week. "As millennials age into the peak years of homeownership, we expect that the demand for housing will be very strong in the coming years," said Chris Glynn, Zillow's principal economist.
While low interest rates are contributing to the continued appreciation, even that can't always make a mortgage a financial reality for buyers, Glynn said. "The challenge interest rates can't solve is the one barrier to entry — down payments," he said. "Prices rising definitely adds to the challenge of coming up with that down payment," he said. Programs that let buyers put down less than the traditional 20 percent can help, but in some markets, he said, would-be buyers find that this puts the cost of a monthly mortgage payment out of reach.
"Given the housing shortage and strong demand — there's nothing to suggest home prices will be falling," Yun said.
Yun suggested that President Joe Biden's infrastructure plan should incorporate initiatives aimed at getting buyers into homes.
"It's not a good outcome for the country," Yun said. "We want to make sure that people who are making financially responsible decisions should have access to homeownership. We need to build more, and more consistently, so home prices come down," he said.
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This is why I sold my house 3 months ago rather than next year as I had planned. I listed it at a ridiculously high price expecting to have to come down. It sold at the high price in one week.
The neighborhood we are living in is insane right now. We just refinanced our house and have 350k on the mortgage, similar houses are selling for 600k within a week of going up.
The same in our retirement community, houses come on the market and are sold with a few days and it's driving the prices up. New construction here was between 4 to 6 months to complete it's now 12 to 15 months and lots to build on are in a lotto with prices exploding.
Homes, where I live, don't last 24 hours on the market. They go on the market on Friday night and are usually gone at the end of the day Sat. usually for about 10-15% more than asking, which is already at a crazy price. People have taken to rehabbing homes that would have been knockdowns before.
Between paying off my reverse mortgage and realtor fees, I was left with little more than half the selling price so I am glad I sold it high.
A brother in law of mine is a realtor and he was saying a couple weeks ago that if you aren’t planning on offering 20% above asking (and preferably paying cash) then don’t even bother making an offer.
The realtor I used when I bought my house said he has to keep turning down clients - there's hardly anything on the market here right now. The housing market is so hot it sounds like he should be making a lot of $, but there has to be something to sell.
It doesn't seem like this is sustainable. It almost reminds me of the market in 2007/2008. Although then they were handing out loans like Halloween candy.
The only difference is that now loans are a bit more difficult to get but I agree with you, it's not sustainable in the long term. There have been many RE busts over the years and this, IMO will be another.
Thing is right now it is simply an issue of supply not being able to meet demand. Not a lot of bullshit going on behind the scenes like 2008, it’s just that for every house in the market there are 3 parties interested in buying.