While the debate among economists and prognosticators continue as to the near-term future of the housing market, the data, the most valuable currency in business, suggests the environment today is nothing like it was leading up to or during the period known as the “Great Recession” of 2008 – 2012. One of the key reasons why the current market will not experience the same results of that period is the undersupply of homes for sale. While inventory is up 27.8% compared to the same week last year, compared to the same week in 2019 there are 42.6% fewer homes for sale, meaning inventory is still historically low. Realtor.com economist, Jiayi Xu, reported This Week in Real Estate that this week marks the seventh straight week of year-over-year declines in the number of new listings and a second consecutive week of double-digit declines. For the week ending August 20, the number of new listings dropped by 12% from a year earlier. Ironically, prices continue to climb. For the week ending August 20, home prices increased by 14.4% over the same time period last year. Below are a few newsworthy events from the fourth week of August that influence our business:
NAR: Contract Signings, Down Again, May Have Hit Bottom. Home buyers continue to recoil from higher mortgage rates and home prices, with pending home sales in July plummeting nearly 20% year over year, according to data from the National Association of Realtors released Wednesday. Pending home sales have fallen in eight of the last nine months as the market retreats from its pandemic highs. Still, NAR Chief Economist Lawrence Yun says a turnaround is likely. “In terms of the current housing cycle, we may be at or close to the bottom in contract signings,” he says. “This month’s very modest decline reflects the recent retreat in mortgage rates. Inventories are growing for homes in the upper price ranges, but limited supply at the lower price points is hindering transaction activity.” Affordability is taking a big hit, too, plunging in June to its lowest level since 1989, NAR reports. “Home prices are still rising by double-digit percentages year over year, but annual price appreciation should moderate to the typical rate of 5% by the end of this year and into 2023,” Yun says. “With mortgage rates expected to stabilize near 6% alongside steady job creation, home sales should start to rise by early next year.”
Economists Have a Strange New Buzzword For The Housing Market That Will Shock Buyers and Sellers. The housing market has been called plenty of things this summer: red-hot, insane, brutal. But the latest word du jour to describe the state of real estate today is almost shocking in its tepidness: balanced. This term cropped up most recently in an analysis by Realtor.comeconomist Jiayi Xu, who notes, “Our weekly data suggests that the U.S. housing market keeps progressing toward a more balanced market.” But what does a balanced housing market actually look like – and mean – for buyers and sellers? In a nutshell, “balance” means that the raging seller’s market that’s dominated since the COVID-19 pandemic is slowly shifting – not into full buyer’s market territory, but toward a middle ground that puts buyers and sellers on more even footing. Over the past two years, the pace of real estate sales has sped up significantly. Nationally, homes are on the market a median 35 days before getting snapped up. But this rush is waning. For the week ending Aug. 20, properties spent four extra days on the market compared with this time last year. “For a fourth week in a row, homes are sitting on the market for a longer time than last year,” adds Xu. “As both buyers and sellers adjust to the rebalancing market, expectations shift, reducing the sense of urgency in the market and reinforcing the trend toward longer sale timelines.” “This week marks a seventh straight week of year-over-year declines in the number of new listings coming up for sale, and a second consecutive week with double-digit declines,” notes Xu.For the week ending Aug. 20, the number of new listings dropped by 12% from a year earlier. The deep irony in listing skittishness is this: Sellers still stand to make bank, since home prices continue to soar through the roof. Currently, property asking prices clock in at a median of $449,000 nationwide. And for the week ending Aug. 20, home prices shot up by 14.4% over that same time period last year. To give you a sense of how far this sum has come, prices have climbed by double-digit percentages for 36 weeks straight. As Xu points out, “Home equity remains at a record high.”
Why Today’s Housing Inventory Proves The Market Isn’t Headed For a Crash. Whether or not you owned a home in 2008, you likely remember the housing crash that took place back then. And news about an economic slowdown happening today may bring all those concerns back to the surface. While those feelings are understandable, data can help reassure you the situation today is nothing like it was in 2008. One of the key reasons why the market won’t crash this time is the current undersupply of inventory. For the market to crash, you’d have to make a case for an oversupply of inventory headed to the market, and the numbers just don’t support that. Even though housing supply is increasing this year, there’s still a limited number of existing homes available. Based on the latest weekly data, inventory is up 27.8% compared to the same week last year. But compared to the same week in 2019, it’s still down by 42.6%. So, what does this mean? Inventory is still historically low. There simply aren’t enough homes on the market to cause prices to crash. There’s also a lot of talk about what’s happening with newly built homes today, and that may make you wonder if we’re overbuilding. But home builders are actually slowing down their production right now. It’s a sign they’re being intentional about not overbuilding homes like they did during the bubble. And according to the latest data from the U.S. Census, at today’s current pace, we’re headed to build a seasonally adjusted annual rate of about 1.4 million homes this year. While this will add more inventory to the market, it’s not on pace to create an oversupply because builders today are more cautious than the last time when they built more homes than the market could absorb. Although housing supply is growing this year, the market certainly isn’t anywhere near the inventory levels that would cause prices to drop significantly. That’s why inventory tells us the housing market won’t crash.
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