Finding a Place to Call Home

Finding a Place to Call Home

But you might find yourself asking, "is now the right time to buy?"

Here's a few key factors that might help you with this decision as key analysts only predict that the market will continue its upward growth pattern.

We have the Lowest Inventory Ever!

We started off with the Record Low for home inventory.  That is despite solid growth in new home starts and sales.  As of the end of December, inventory nationally was only 1.8 months of supply, down from a previous low of 2.1 months.  This number is typically 6 months of supply in a normal market.  So, why is this happening?

Experts attribute it to a "perfect storm".

1. We aren't building enough. Home builds are up, but we are still not building enough homes to satisfy the demand that is created just by population growth alone. Add to that the existing inventory dwindling due to the below factors and it is a crisis.

2. Institutional investors have been investing more aggressively in housing since 2008. Where the single family home rental market was largely run by "mom-and-pop" owners historically, some large hedge funds are each individually purchasing hundreds of thousands of homes, out-bidding families trying to buy. Historically cash purchases made up 25% of home sales, but they are now over 33%.

3. COVID unrest has caused many people to hold off on selling either due to financial insecurity, job loss, or social anxiety. The fast-rising prices have also left many sellers asking "why sell, where would I go?". These further reduce actively listed homes.

4. Conversion of residential units into short term vacation rentals...or, simply put, into hotel rooms. There are roughly 142M total housing units in the USA. Currently, 2.6M of them are being used as short term vacation rentals. That's almost 2% of the housing market! That number is expected to grow by over 7% per year, gobbling up more of the existing inventory. (Pre-COVID it was growing by as much as 51% per year!). Experts calculate that a 10% increase of STVR listings in a market leads to a .42% increase in rents and .76% increase in house prices. 

There are certainly other factors at play here, but these four seem to be driving the bulk of the inventory shortage. 

 

Home Prices Soar

Each of the factors above drives up home prices. Year over year AVERAGE home prices went up by 17.5-18.3%. Some markets were double that number. One other key factor impacting home prices currently is the recent creation of trillions of NEW dollars pumped into the US economy and the subsequent inflation we are now experiencing. The money distributed impacts the amount of money an average buyer can spend while inflation impacts the price of all goods, housing included. For reference, inflation currently sits at 7.5% compared to 1.7% this time last year.

 

Interest Rates

In January, rates were up YOY but still hovered at a national average or around 3.22%. This is still a historically low number so it hasn't dramatically impacted housing demand (though it is hard to tell given the lack of inventory). Since then, rates have increased substantially so keep an eye on the impact!

 

Time for Some Good News!

According to NAR, when you combine the immense house prices with still-low interest rates, home affordability is still above a historical norm...meaning that historically, it is still a good time to buy if you can. Conversely, due to rising rents, rent affordability is reaching all time lows. Rents went up by 30% in some markets last year which means your future, as a renter, is largely out of your control. If you buy, you lock in your monthly expense in perpetuity (except changing taxes, and insurance) and keep the future in your hands.

Beyond that, with inflation running rampant, buying now you are locking in today's dollar value. If inflation continues at nearly 8%, even if your house decreased in value by 8%, it would be a "wash".

Lastly, high prices make buyers nervous. They want to wait for the "bubble to burst". Our clients have been saying that since 2018 when prices were nearly half what they are now. The best advice to a qualified buyer is that there is no timing the market, just time in the market. Owning long term is almost always the right decision, but they should be ready to weather short-term corrections, fluctuations, or even bubble bursts. Ultimately, make sure you buy something with a monthly payment you can afford and are comfortable owning. It is still one of the biggest decisions you and your family will make in your life.