With the recent events of late 2021 still fresh on the minds of many nominal homeowners and inflated housing prices still exceeding their previous peaks, the housing market appears to be an obvious area for investors to hunt for signs of cooling. Large cities with stratospheric housing costs, like San Francisco and New York City, imply at least some possibility of correction although troubled areas, like Phoenix and Las Vegas, appear to be sliding into a new recession. Aided by historically low interest rates, the real estate market in these cities has been on a tear all year, with sales volumes reaching record levels and prices increase. And yet, many people who would be interested in buying a home are deterred by the seemingly insurmountable cost of doing so.
“The buyers who get into the market now are paying too much money,” laments Sam Snead, chief executive officer of the California Association of Realtors. “We’ve been hearing horror stories about the lack of quality units on the market to rent or purchase. But the main culprit, we’ve heard, is the shortage of new units – that units aren’t priced to move out by the time the average renter or purchaser gets them.”
But even as this problem remains, current affordability means that some people can actually afford to buy a home in these cities. In many cases, there is simply no current supply, as builders have struggled for years to meet demand. The problem is that most people don’t even know they exist. As an example, only 5% of new homes are sold during the entire year in some states, according to the National Association of Realtors. And even when sales do occur, it is usually from existing owners looking to sell because they need a vacation home or are downsizing. Only 1.5% of newly constructed homes are sold within the first year, according to National Association of Realtors.
The solution to the shortage of supply can be found in the relatively new field of green building, which makes use of environmentally friendly materials to produce high-end homes and businesses. Some of these homes and businesses are specifically built with smaller energy consumption in mind, helping to combat the widespread pandemic of high energy costs. These new real estate developments are being constructed with insulation, low-flow shower systems, energy efficient HVAC systems, and water-saving fixtures. They are also constructed to meet stringent codes for energy and safety, and to make sure these buildings are built to code.
But the green component of green housing does not address the most pressing problem facing the housing market right now: a lack of buyers. Green homebuyers cannot simply move into a community and expect to find buyers, especially in today’s economy. Although the national housing market has taken a major hit, there are still a significant number of buyers in the marketplace. However, many of those buyers are waiting to buy. Historically, homebuyers tend to wait until they see the rate of home sales fall before they put their houses on the market. However, with so few homes on the market, and a significant number of buyers who have already moved out, prices have begun to fall significantly.
As a result, there is a significant segment of the population that is either not selling, or selling but at very high prices. It’s no wonder that bank loans are being rejected for many borrowers who are currently in the process of purchasing a new home. Because of this, lenders and mortgage brokers are offering cash incentives to potential buyers. In addition to offering cash incentives, some lenders are now offering drastically lower interest rates on mortgages to people looking to purchase a new home, as well as waiving some closing costs.
For renters in the housing market, it is important that you understand how much room you have to find a new home and still be able to afford your monthly bills. Unfortunately, in today’s economy, most renters have little to no equity built up in their homes and are currently trapped in sub-prime lending traps. Sub-prime lending traps are where borrowers obtain home loans based on inflated expectations of future income, and then, once they reach these expectations, become trapped by overextending themselves financially. The result is they have huge monthly payments that are greatly increased by the lenders, and while renters may not realize it, they are hurting the economy.
Real estate professionals are predicting that the number of new listings will drop to just under 1 million within the next couple weeks. Many realtors have reported that they are seeing less activity on their listings, and even fewer homes being listed on their websites. While this is bad news for buyers looking for a new house, it is good news for those who are holding on to their homes. Right now, there are more homes on the market than there are buyers, which is causing homes to stay on the market longer than normal. However, once the dust settles and the numbers start to add up, we should start to see an increase in new listings and a bottoming out of the current supply and demand situation in the housing market.