Yahoo Finance Housing Market 2023: Why It’s So Hard To Buy a House Right Now — And What You Can Do About It
If you feel like you’re experiencing deja vu with the housing market due to things like the lack of supply and high prices — similar to the state of the market in 2021 — you’re not far off.
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The truth is: Buying a house right now can be a daunting task due to multiple factors. Read on to understand why it’s so hard to buy a house right now and discover what you can do about it.
Why Is It So Hard To Buy a House Right Now?
“The primary drivers for the difficulty in purchasing a home in today’s market have been the extreme lack of supply of homes for sale and affordability concerns due to rising rates,” said Nirvan Ghosh, CFA, portfolio manager at The Palisades Group. “We know supply isn’t going to be coming from existing homes, due to the ‘lock-in effect.’
“More than 80% of homeowners have mortgage rates below 5.0%, making them reluctant to sell their homes. New home sales have been on a positive trajectory here in 2023, but keep in mind that they are — historically — a small minority of overall sales; from 2000 to 2019, new homes accounted for only 13% of total home sales.
“Affordability has also been impacted by continued increases in mortgage rates,” Ghosh added, “with the 30-year fixed rate now at 7.32%. This translates to mortgage payments being upwards of 50% more a month on average for the typical homeowner shopping in this market relative to January 2022.”
Isaac Lidsky, CEO of Home Construction Collective, has some additional ideas about why home supply is so low right now.
“Securing financing for new home construction is challenging for the independent homebuilders who build the vast majority of new homes, as very few lenders specialize in this area,” he said. “Of note, regional banks traditionally contribute more than 70% of financing; today, some estimates hold that nearly half of those banks are insolvent owing to the most recent banking crisis. Third, the rise of institutional investors purchasing homes to rent has further reduced the availability of homes for sale.”
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What Can Potential Homebuyers Do To Overcome the Challenges?
Ghosh and Lidsky both have advice when it comes to overcoming homebuying challenges.
Be Ready To Make Your Move
“For those in the market for a new home, remain alert for new listings, have a pre-approval letter in hand from a mortgage lender and be prepared to move quickly when a home checks all the boxes,” Ghosh said. “With multiple buyers looking to bid the same home, there’s less of an opportunity to sit on your hands in this market.
“The upside to shopping for a home right now is that the market has cooled somewhat from the frenzy that took place in 2021, which allows homeowners a bit more negotiation power once they have a home under contract.”
Adjust Your Expectations
Lidsky said the sad reality is that potential homebuyers are ill-equipped to do much other than adjust expectations with respect to affordability.
“This means many homebuyers are going to buy less home — square footage and other amenities — than they might otherwise have wished for,” he said. “Home prices remain stubbornly high despite interest rate increases, which we think highlights the predominant issue facing housing markets: Millions of people want to buy homes that do not exist.”
What Might Happen With the Housing Market in the Future?
“There is hope that 2024 is a better market for potential homebuyers,” Ghosh said. “There’s been an increase in single-family housing permits combined with an increase in home builders’ sentiment. This should hopefully translate to an increase in new home inventory on the market next year.
“On the existing home sales side of the equation, 23% of homeowners surveyed are considering selling their home in the next three years or have their home currently listed, which is a 50% increase from a year prior. With homeowners adjusting to the new paradigm of mortgage rates and life events taking place — job changes, death, divorce, etc. — the impact of lock-in effect could become a bit more muted, allowing for some increase in supply from the resale market.
“Unfortunately, on the mortgage rate side of the question,” Ghosh added, “the long end of the curve is the topic du jour, with Fitch downgrading the United States’ long-term from AAA to AA+ and the U.S. 30-year bond hitting the highest level since November at 4.292%. It’s too early to tell if prospective homeowners can expect a reprieve in their mortgage rates in 2024.”
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This article originally appeared on GOBankingRates.com: Housing Market 2023: Why It’s So Hard To Buy a House Right Now — And What You Can Do About It
