It is set to see better times ahead shortly as the “housing recession” ends.
Lawrence Yun, chief economist at the National Association of REALTORS(r), said at the quarterly Real Estate Forecast Summit that bidding wars are back because homebuyers’ demand is rising, even though inventory is still a bit scarce. The number of homes available for sale is historically low, and Americans who want to become homeowners remain high. “Home sales are likely bottoming out this year before an upturn next year,” Yun predicted. “But it’s contingent on mortgage rates falling.”
Yun and Jessica Lautz, NAR’s deputy chief economist and vice director of research, gave an overview of the most important trends they’re observing in the market for housing.
1. Doom-and-gloom stories are exaggerated. The housing market is recovering from an epidemic that triggered highs, and with existing home sales soaring 19% year-over-year, that doesn’t mean the rut for the long term is beginning to form. “I keep hearing people say they’re waiting for prices to drop,” Lautz stated. “But when you examine the data, it’s not happening. You might see some price variations in one state, but then an array of headlines, but the sky aren’t falling.”
In reality, there are over three offers per property as per NAR statistics, and around 33% of the homes available for sale across the country are selling for more than the listed price. Even though distressed sales — foreclosures and short sales have experienced an increase of a small amount but they are still at historical levels and won’t likely to grow significantly, Lautz said. “Homeowners have equity, so even if they face a life event, they will likely still have enough equity to cover their mortgage.”
2. Americans are making longer journeys. Between 1981 and 2021, the typical homebuyer moved 10 – 15 miles from home. In the last year, the average homebuyer moved 50 miles. NAR’s data indicates that a quarter of them pushed over the 470-mile mark. Lautz noted that buyers are moving due to many factors, including the possibility of retirement, closeness to family members, housing affordability, and the possibility of working remotely.
Websites on real estate are becoming crucial to buyers who are moving: “People who move longer distances still use a real estate agent,” Lautz explained. “But they’re increasingly finding their agents online, not by going to family and friends for a referral.” In addition, long-haul buyers will more often utilize technologies, like virtual tours, in their search for homes as well, she said.
3. Cash buyers are formidable competitors. About 26 percent of the market consists of cash-based buyers, significantly more than before the outbreak, Lautz said. Most of these buyers are homeowners and investors who have accumulated equity and can purchase an additional home with cash. Lautz explained that these buyers are proving to be a tough opposition for first-time home buyers, who typically make smaller down payments.
4. Generational dynamics are playing out. A typical first-time homebuyer is 36, indicating the shift in culture towards buying homes later as opposed to previous generations. A shortage of affordable homes is impacting young adults who can afford homes, Lautz noted. FHA loans and VA mortgages, which aid those in need, can offer low down payment options and could be the key to getting younger adults to homeownership, she said.
Boomers from the past have overtaken the millennials as the largest home-buying market in America, and the older generation accounts for 39 percent of the market and 28% of young adults, as per NAR statistics. “Millennials have been priced out and are often losing out to cash buyers,” Lautz stated. Baby boomers, most of whom have amassed house wealth over the years, are likely to be motivated to relocate to be close to family members, own the “forever home,” have a smart home, and have roommates.
5. New construction is a bright spot on the market. Although inventory levels are at historic lows, the new home market has more options for customers, Yun said. New-home sales usually comprise 10 percent of the market, but they currently are running around 20% said. NAR anticipates that sales of new homes will climb 12.3 percent in 2023 and 13.9 percent in 2024.
6. The price of homes is likely to stay the same shortly. Prices for homes are down by 1% when in comparison to the same time last year, Yun said. There are regional variations: San Francisco, for example, has seen its home prices fall by 15% yearly. “But overall, I think the decline is over,” he added.
Other price measures, such as those of the FHFA’s House Price Index, show signs of a monthly home price rise. According to NAR statistics, the median sales cost of a home in June jumped to $410,200 – the second-highest level for more than two decades.
“While there may be little changes to prices from one quarter to the next, the long-term perspective is that housing has brought great wealth accumulation for homeowners,” even those who bought in the past two years Yun said. In addition, prices for homes remain more expensive than the previous year in virtually each U.S. market. NAR has predicted that home prices to increase by 2.6 percent by 2024.