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In recent years, the real estate market has been characterized by high prices and low sales. The housing shortage is not going away anytime soon, and some experts predict the U.S. economy will remain on a downturn for many more months to come. However, it may be good news if you’re looking to buy or sell your place with confidence — because according to REALTORS, home sales are forecasted to fall about 14% and home prices will increase 11%, which would make this year one of the best real estate markets ever. Keep reading to find out what other factors could affect prices, as well as how much homeowners can expect to pay for their next move.
The New Normal For A Few Short Years Before Everyone Goes Back Into Summer Vacation This spring, consumers were preparing for another potential spike in mortgage rates and inventory from people who have delayed renovations, but they were also anxious for summer vacations and more time outside at home. Then COVID-19 hit. Everything stopped for nearly two-and-a-half years. “It was like an absolute shock,” said Scott Shonkoff, executive vice president and chief economist of the National Association of Realtors. “People didn’t realize we were going into recession in June, until July was announced. It took us three years to recover from that shock. We went back to having normal life when everything began to open up during August. If things don’t improve, we are likely still in recession. I think most people should get used to thinking maybe recession is just around the corner,” he added. Indeed, real estate in the U.S. had not been performing well before COVID-19 struck, with median prices steadily rising over the last decade even as income fell. Now, Shonkoff predicts, there may be further price increases ahead, and he expects a few short falls before reaching economic equilibrium. That means that, for now, we have yet to see any slowdown in buyer demand, he said. With unemployment on the rise and more Americans seeking new jobs outside their homes, Shonkoff pointed to the fact that existing home buyers could continue to purchase properties as they did before this year’s pandemic. However, he noted that in addition to paying higher prices for houses, there may be less demand among those buying second homes on vacation in Hawaii, Florida, California, etc. The first quarter of 2023 may be another slow down. Still, there may finally be a turnaround for homebuying after all. “It goes back to all of these numbers,” said James Murray of Zillow Analytics. There is still pent up demand for investment properties that haven’t been realized by investors and salespeople. Some are worried that this will cause affordability concerns as some homes sit vacant so long with no new ownership, but this is not true. Many homes sitting empty because sellers won’t buy them again, according to data from Zillow. “Buyers just want to take advantage of their money when they have the opportunity to do so and it will happen,” Murray added. Another reason for slowing homebuyer demand may be because, unlike past periods after 9/11, where the housing sector quickly recovered within weeks of the destruction, our current rebound might be too quick for some. That’s largely due to the supply chain disruptions caused by the war in Ukraine, but it’s also because the stock market surged during 2021, making housing more expensive, resulting in greater competition for homebuying power. So far, only 30 million Americans have moved in the past year, down 12% from 2020, although the number of homes for sale has grown 42%. While both supply and demand are dropping, the national housing shortage remains very tight, forcing many sellers to pull their listings due to limited inventory. Zillow reports it currently holds roughly 1.4 million active listings for sale on its platform. By comparison, there were 3.6 million single family homes available in June 2021. Last month, there were 2 million single family homes listed on REALTORS.org, representing a 26% decline since May. But even though there are fewer homes for sale and fewer homes for rent, the average home still sells for $1,050,000, while the median household income is still $71,000. On the flip side, home sales typically move faster than inflation. In 2021, sales of newly constructed homes soared 62% compared to 2019. Home prices increased by 8%, and median sales decreased slightly to $1,848,000 for the same period, according to Cramer Report Research’s latest report. However, sales for pre-owned homes rose 38% in 2021 compared to 2019. As such, prices rose 16%. One big factor that affects prices is the cost of land and building materials, which has risen by 22%, according to NAR’s Economic Research Unit. “As construction costs climb across the country, affordability and value of housing will become more challenging,” the research unit concluded.