The Covid-19 pandemic upended the home-buying process. Historically-low mortgage rates coupled with an inventory shortage created a red hot market, with houses selling within hours of being listed, often for well over the asking price. The pandemic coupled with the foreclosure crisis, stagnating wages, and growing income inequality led to a shift in home-buying trends.
In 2014, first-time buyers made up only 31% of all purchases of existing homes. In 2016, the first three months the figure was 33%. This represents a precipitous drop from 2010 when 62% of buyers were first-timers. This shift to the rental market has benefited apartment developers, who have been scrambling to keep up with demand.
Despite this, the demand for pandemic supplies will be high. There was a lack of housing in the country even before the epidemic began. And there have been supply chain issues and a labor shortage that has only added to the problem. While builders work to increase production, inventory is likely to remain restricted. In fact, the number of houses actively listed for sale on Trulia was down 18% year-over-year in the first quarter. At the same time, demand for rentals should remain high, even if mortgage rates increase.
This should keep prices elevated and rental rates growing faster than inflation over the next five years.
Interest rates will get even higher
The Federal Reserve is expected to raise interest rates four times in 2022, which implies mortgage rates will climb. By the end of 2022, according To Redfin and Realtor.com, a 30-year-fixed mortgage rate will be 3.60 percent, compared to an average of 3.30 percent now. This trend is going all across the nation and we can even see this in the home of Myrtle Beach SC new homes where sales were all became much more expensive in the last couple of years.
That isn’t necessarily good news for buyers. It might indicate that the “silver lining” of higher mortgage rates but fewer speculative purchasers will be in the market because there is less money to be made. That may assist the typical person. And high demand, coupled with low inventory, may push up sale prices.
The current homeownership rate is 63.5%, which is well below the highs of 69% in 2006 and 2004. The housing market will continue to restructure itself over the next five years to align more closely with incomes and demographics. We believe that further declines in homeownership will be inevitable. With the demand for housing remaining elevated, it is likely that prices will rise faster than income growth. This will further exacerbate affordability issues.
Also, with rental rates growing faster than inflation, owning a home could become more expensive compared to renting in most markets across the country by 2022. That would lead to less demand for purchasing homes.
The bottom line is that the US housing market by 2022 will be one with more rental demand compared to now, with higher costs of renting and buying homes, suggesting less homeownership for most demographic groups.
Young buyers still won’t be able to buy houses
First-time homebuyers, according to the National Association of Realtors, have been facing a number of hurdles when it comes to entering the housing market. While the barriers have lessened in recent years, they remain high for millennials and gen Xers.
This is not only because houses are more expensive these days than when baby boomers and previous generations bought their first homes, but also because Boomers are remaining in their houses for a longer period as they live longer.
Be ready to research and buy the right home
The homeownership rate is likely to continue to decline for the foreseeable future, so renters might have to wait a long time before buying. Ultimately, this means that investors are likely to have more opportunities in the rental market as individuals look for ways to find affordable housing.
For those who are looking to buy soon, it is important that they plan ahead. You’ll need to be ready for the hunt, which requires doing your research before you start looking.
Additionally, if you are looking to buy a home today, it is important to understand that not all homes are created equal. Not only will they have different prices and values, but they could have very different features as well. When you are buying a home, you should be aware of what you’re getting into before you sign a contract. This way, if the house doesn’t turn out to be everything that you thought it would be, then at least it isn’t a surprise.