US housing shortage may squeeze first-time buyers out of the market
Rabid demand coupled with a lack of inventory is causing home prices to rise
Demand in the U.S. housing market is surging, but affordability is likely to be a challenge for some prospective buyers as the number of homes for sale lags.
Existing home sales in August hit their highest level since December 2006, according to data from the National Association of Realtors, rising 2.4% from July to an annualized rate of 6 million. Year over year, sales are up more than 10%.
NAR’s chief economic Lawrence Yun indicated he doesn’t foresee demand slowing down any time soon, saying in a statement on Tuesday that there are “plenty of buyers in the pipeline ready to enter the market.”
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Industry players are reporting similar trends.
Meritage Homes Corporation, which is one of the largest U.S. public homebuilders, said this week that it has already sold more in the first two months of the third quarter of 2020 than it did in the entire third quarter of last year.
That demand, however, could spell bad news for some buyers because it is pushing prices higher amid a lack of inventory.
Total housing inventory at the end of August was down 18.6% when compared with the same period last year, while the median home price rose 11.4% year over year, to $310,600. Price increases were seen throughout all regions of the U.S., according to NAR.
“This lack of supply continues to push home-price growth higher,” Mortgage Bankers Association associate vice president of Economic and Industry Forecasting Joel Kan, said in a statement. “The 11% gain in prices is far above income growth and threatens overall affordability – especially for first-time buyers. Homebuilders continue to face constraints, including higher production costs. However, it’s clear that more inventory is needed to keep home prices from rising too quickly.”
Incomes rose 6.8% last year, according to recent data from the U.S. Census Bureau. Conditions have become more challenging in 2020 due to the economic effects of the coronavirus pandemic, which caused millions of Americans to lose their jobs.
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Redfin chief economist Daryl Fairweather also noted that conditions are particularly challenging for first-time buyers, adding that people have expanded searches into traditionally affordable neighborhoods – which has, in turn, caused prices to rise in these areas as well.
Yun said that a shortage of lumber, exacerbated by the California wildfires, has worsened inventory challenges.
But Fairweather said even if price increases moderate in 2021, first-time buyers are likely to continue to struggle with affordability.