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A real estate For Sale sign reading Sold hangs on Bard Avenue lawn as home buyers gain strength amid an ailing market.Thursday July 12, 2012. (Staten Island Advance/Anthony DePrimo) Staten Island AdvanceStaten Island Advance
We’ve all heard about houses selling in days with multiple offers and bidding wars being the norm. But in the midst of a pandemic — and all its implications — it’s tough to understand why the housing market is so hot.
Experts tell NJ Advance Media the record home-buying spree is being fueled by low interest rates, a flourish of millennial buyers and urban flight.
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Economists surveyed by the Urban Land Institute see home price growth elevated through 2023 albeit slowing.
Housing starts will rise to their fastest rate since 2007 but still fail to meet demand, ULI said.
Elevated lumber prices have curbed building and could spark a housing affordability crisis.
Prospective buyers waiting for the housing market to cool down shouldn’t hold their breath.
Home-price inflation will slow from last year’s peak of 11.4% but remain elevated as the market boom charges forward, according to economists surveyed by the Urban Land Institute in May. The estimates for average price growth in 2021 and 2022 were revised higher to 8.1% and 5%, respectively, and price growth is forecasted to reach 4% in 2023, landing just below the country’s 20-year average but still outpacing broader inflation measures.
ULI, which calls itself the world’s oldest and largest network of real estate and land experts, surveyed 42 economists and analysts across 39 real-estate organizations from April 23 to May 7.
Some of the inflation slowdown will be driven by a rebound in home supply, according to the survey. US home inventory tumbled to a record low in fall 2020 and has since retraced only a portion of the decline. And while housing starts surged in March, elevated lumber prices and lot shortages dragged on starts in April.
Economists see single-family starts climbing to an annualized rate of 1.1 million by the end of this year and reaching 1.2 million in 2022 and 2023, according to ULI. That compares to an average rate of 990,500 starts through 2020 and 1.1 million in April.
While housing starts already exceed the 20-year average of 942,000, inventory will fall short of the country’s massive demand. Estimates of population growth, demographic change, and demolitions suggest about 1.3 million households will form annually for the next few years, Goldman Sachs analysts said in a May note.
Millennials are just reaching peak homebuying age and set to keep demand strong for the foreseeable future. Elevated lumber prices and lot shortages will continue to drag on construction even as starts accelerate. And while mortgage rates have risen from their pandemic-era floor, they still sit at historically low levels and should keep demand robust, the bank said.
“The resulting picture is one of a persistent supply-demand imbalance in the years ahead,” Goldman economists led by Ronnie Walker added.
And even if construction is to trend at 1.1 million this year, a handful of obstacles need to be cleared. Lumber prices remain at historic highs even after falling for seven days straight. Bottlenecks that lifted lumber costs have since bled into construction. About 47% of builders added escalation clauses to contracts last month, allowing them to lift selling prices to offset higher costs. Nearly one-fifth of contractors said they’re delaying building or sales entirely, possibly waiting for lower costs to improve profitability.
The construction industry will also need to convert vast amounts of land into buildable lots and, eventually, new units. The New Home Lot Supply Index fell to a record low in the first quarter, according to analytics firm Zonda. Separately, the number of approved homes that haven’t yet been started climbed to the highest level since 1979 in April.
Unless housing starts rebound from the April slump, the nationwide supply shortage risks leaving an entire generation in the dust as builders struggle to keep up.
They increased 12% statewide last year and are expected to do the same in 2021, according to data from Otteau Group, a real estate consultancy group. But there are some towns throughout New Jersey where median sales prices have exploded — gaining several times the statewide amount.
Home value appreciation slowed for the first time since January, though appreciation is still high.
Inventory rose for the fourth month in a row, easing competition over houses for-sale.
Rent growth also slowed, though the typical monthly U.S. rent is $200 more than this time last year.
Rapid housing cost growth cooled somewhat in August, paving the way for a still-strong but potentially more manageable housing market come fall. Inventory that continues to rise and a growing share of listed homes cutting their price are giving buyers more options and less stress.
The typical U.S. home was worth $303,288 in August, from $298,061 in July. Monthly home value appreciation has been faster than the month before in every month since January, but finally eased in August, slowing from 1.97% month-over-month growth in July to 1.75% in August. But while the slowdown is a notable change, August’s 1.75% monthly growth still represents the third-fastest monthly pace in more than 20 years of Zillow data.
Monthly home value growth was still positive nationwide and in all 50 of the country’s largest markets, but the monthly slowdown was widespread, with 43 of the 50 largest major metros seeing appreciation cool between July and August, compared to only 20 from June to July. The largest drop-offs were in Buffalo, San Diego and San Francisco.
But while month-over-month appreciation is coming back to earth, annual U.S. home value appreciation continues to set records, up 17.7% year over year, more than $45,000 above where they were last August. Among the nation’s largest markets, annual appreciation was fastest in August in Austin (44.8%), Phoenix (31.8%), Salt Lake City (27.9%) and San Diego (26.9%).
Available housing inventory continued its upward trajectory for the fourth straight month, rising 4.1% over July but remaining down 22.7% from the same time a year ago. For-sale listings rose the most month-over-month in Detroit, Oklahoma City and Buffalo. And the annual declines in inventory are not universal — Austin and Washington D.C. had more available inventory this August than they did one year ago.
Nationwide, the share of listings with a price cut rose for the fourth consecutive month, to roughly one-in-eight homes (12.25%) from roughly one-in-10 in July (10.3%). In August 2019, prior to the pandemic, the total share was 17.4%.
Rental Market Echoes For-Sale Cooldown
Typical U.S. rents measured by Zillow’s Observed Rent Index (ZORI) were $1,874 in August, almost $200 more than in August 2020. The rental market demonstrated similar dynamics as the for-sale market in August, including the timing of the initial slowdown in appreciation. Like the for-sale market, month-over-month rent growth had been accelerating since January before cooling in August, slowing to 1.7% from a record high 2% in July. But again like the for-sale market, annual growth hit new highs, rising 11.5% year-over-year, the fastest in Zillow records dating to 2015.
Among the nation’s largest markets, rents were up the most year-over-year across the Sun Belt, especially Las Vegas (24.9%), Phoenix (24.8%), Tampa (24.7%) and Riverside (20.6%). Rents fell month-over-month in Kansas City and Richmond, and stayed flat in Cincinnati.
The strong recovery of inventory and initial lift off the gas pedal for housing cost growth is indicative of balance returning to the market. But the major demand drivers that have pushed the market to extremes this year are still present – we’re moving from a white-hot mid-summer to somewhere closer to red-hot as we head into the fall.
Looking Ahead
Slowing monthly appreciation is not expected to be echoed in slower annual growth until early 2022, with year-over-year growth in the Zillow Home Value Index expected to end 2021 up 19.9% from the end of 2020 and continue accelerating to 20.1% in January 2022 before beginning to slow down. Additionally, the number of completed existing home sales this year is expected to be higher than previous estimates, exceeding 5.9 million sales in 2021.
Zillow economists expect the typical U.S home value to increase 4.7% over the next three months (August-November), and to end August 2022 up 11.7% from August 2021. Both the three-month and 12-month home value forecasts have been revised downward from last month, when we expected 5.2% growth from July-October and 12.1% growth from July-July. The small downward revisions were influenced, in part, by recently slowing monthly home value appreciation and continued increases in inventory that should contribute to a modest rebalancing in the market between buyers and sellers. The home value forecast was also influenced by the possibility of rising mortgage interest rates over the longer-term, which may serve to slightly dampen growth in housing prices.
Our expectation for existing home sales, on the other hand, has improved compared to last month. Zillow expects a total of 5.93 million existing home sales in 2021, up 5.1% from 2020 (on its own the strongest year for existing home sales since 2006) and higher than the 5.89 million sales in 2021 that we expected last month. Strong sales growth in July helped nudge our outlook through the end of the year higher, though the possibility of diminished housing affordability (through both higher prices and potentially higher mortgage rates) and a continued slowdown in household formation continue to weigh on the longer-term outlook.
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Spring 2022 Homebuying Season Preview
Main Takeaways for Buyers
Low housing inventory and high demand will create a strong seller’s market, but not as intense as the peak of 2021.
Home prices are expected to continue rising, but at a slower pace than last year.
To avoid house buying FOMO (fear of missing out) and panic buying, know what you can afford and stick to a realistic budget.
Main Takeaways for Sellers
It will still be a strong seller’s market, but compared to 2021, there will be a smaller likelihood of a bidding war driving up your sale price.
Get ahead of preparing to sell your home. Repairs and upgrades are taking longer to schedule and complete due to shortages of supplies and labor.
All real estate is local. Some markets, or sub-markets, may be stronger or weaker than others.
The 2022 real estate market is shaping up to be something closer to normal.
As we approach the busy spring homebuying season, homebuyers are still likely to face an uphill battle, but it shouldn’t feel anything like 2021.
Home values skyrocketed by nearly 20% at many points in 2021. While housing prices aren’t expected to drop in 2022, the increasing rate of prices should slow down. Many experts believe home values will increase at roughly half the rate (single-digit increases) we saw during the peak of 2021.
Buyers may still face bidding wars, but they aren’t likely to be as intense or as frequent. That means sellers may not be as selective when choosing between offers. In 2021, all-cash offers and conventional loan offers with appraisal contingencies waived were often needed to win the bid. Next year as a buyer, you may be able to be more flexible with the terms of your purchase contract, even if you aren’t necessarily getting a deal on the price.
If you’re planning on buying or selling a home during the spring 2022 homebuying season, here’s what four experts forecast the market to look like and what you can do about it.
‘More Like a Regular Spring Season’
Kerry Melcher, head of real estate at Opendoor, an online residential real estate platform
Kerry Melcher
The seller’s market will continue into the 2022 spring homebuying season, but it should be less competitive for buyers than the previous spring, according to Melcher’s forecast. “The spring season is going to be a high demand season,” she says. But, it’s not going to look the same as 2021, where supply was wildly out of balance with the demand. Spring is typically the busiest time of the year for real estate, and Melcher says it’s going to look like a regular spring season. She says the number of homes for sale should increase compared to 2021 but is likely to remain lower than normal levels. Buyers will still face bidding wars, but not as often or as intensely as before. Melcher expects to see increased home price appreciation, forecasting single-digit home price growth, which would be a much slower pace than last year.
Mortgage interest rates could go up, which will impact your buying power, Melcher believes. “Understanding your financing is really important,” she says, meaning it’s essential to understand the upper limits of your homebuying budget. You may be able to qualify for a loan amount that is more than you’re comfortable with, and you don’t want to get caught up in a bidding war and end up with a higher-than-expected monthly payment.
For sellers, you’ll want to get ahead of any maintenance or upgrades you want to make before putting your house on the market, especially if it’s work you can’t do yourself. Supply chain issues and labor shortages have created a situation where renovations and repairs need to be scheduled farther in advance than before.
‘It Will Still Be a Good Market for Sellers’
Dean Baker, senior economist at the Center for Economic and Policy Research, an economic policy think tank based in Washington, D.C.
Dean Baker
Homebuying demand will fall off somewhat but not plummet, Baker expects. ”It will still be a good market for sellers, but I don’t think anything like what it was earlier this year or in 2020.”
There was a rush of homebuying over the past 12 to 18 months, and those buyers are unlikely to be buying another home in 2022. Bakers does not anticipate a sharp drop in home prices in the next six months, but thinks real estate market fluctuations will be local. A larger percentage of the workforce has the opportunity to work from home, which may fuel competition in housing markets typicallyknown to be more affordable, such as smaller cities and suburbs of cities.
What this means for homebuyers is to focus on the fundamentals of what makes a home purchase the right move for you. “Do it with your own timing.” If it makes sense with your current employment situation and family status, then that makes it a good time for you to buy. It’s a big risk to try to predict what the markets will look like years down the road. Even if prices were to fall, mortgage rates could rise, making a home purchase just as expensive.
‘Severe Shortage of Homes for Sale’
Odeta Kushi, deputy chief economist at First American Financial Corporation, a real estate services firm
The rate at which home prices are appreciating should taper off but remain positive through the 2022 homebuying season, according to Kushi. “It’s really the severe shortage of homes for sale relative to demand that will be the primary driver of continued positive house price growth,” she says. A large contingent of millennials are hitting the prime homebuying years, and for the last decade, there haven’t been enough homes built to meet demand.
Buyers looking to make a move next year will want to be well prepared ahead of time. Buyers may have a little more time compared to 2021 to make a decision, “but given that it will still be a seller’s market, they’ll still likely have to move fast to keep up with that market velocity,” Kushi says. Hone in on your home buying budget so you have a firm plan of what you’re willing to spend for a property that meets your needs. Buying a home isn’t just a financial decision. It’s also a lifestyle choice. Buying a home should make sense for your personal and financial situation.
The spring 2022 homebuying season will be a busy one, Brunker says. Healthy demand from homes and continued housing inventory shortages are likely to continue to drive the market.
At the same time, it shouldn’t be as heated as the peak frenzy of 2021. The rate of home price appreciation is expected to taper off. Instead of the 20% price growth we had in 2021, we may have “home price appreciations in the upper single digits, around 7%-8%, which historically is still a very, very strong year, but you know, not nearly as strong as ‘21.”
That means next year will still be a seller’s market. If you’ve been sitting on the sidelines hoping prices will drop, you may be disappointed, says Brunker. Since home prices parreciation is forecasted to grow, timing the market is not a recommended strategy, he said. That doesn’t mean you should stretch your budget to get into a house right now out of fear that buying a home will only get more expensive. “Don’t rush into a panic situation,” he says. Take the time to find a home you can afford for the long term, and that can comfortably fit into your lifestyle.
Preparing to Sell During the Spring 2022 Homebuying Season
The good news for sellers is that buyers looking for homes are expected to outnumber the homes for sale. Overall, home prices are expected to continue increasing, but real estate can be hyper-local, and demand can vary from one neighborhood to the next. It’s a good idea to work with a local real estate professional to determine an ideal listing price and if any improvements or repairs need to be completed before putting your home on the market.
If you plan on making any major changes or upgrades before listing your home, you’ll want to get that process started as soon as possible. You’re going to need some lead time, says Baker. You’ll have a hard time getting the materials and getting someone to work for you in most parts of the country. Baker says most trade professionals such as carpenters, plumbers, and electricians have long backlogs of work.
When considering the best time to put your home up for sale, “you’d want to list when the demand for buyers is at the highest,” Brunker says. In many markets, that timeframe is from the end of February to May, when families are considering relocating after the school year.
Preparing to Buy During the Spring 2022 Homebuying Season
Overall, most housing markets will be competitive, although some may be tougher than others. Brunker believes the increased flexibility to work from home could strengthen demand in certain areas. Neighborhoods close to large cities but still an hour or two drive could be appealing. “I think those types of areas will see a more rapid appreciation,” Brunker says. This is something to keep in mind as you determine where you want to buy.
First-time buyers looking for more affordable homes may also face more competition. “One of the segments of the housing market that’s been tougher to break into is that starter home price point,” Kushi says. There is a large demographic hitting the prime first-time buyer age range, and builders have struggled to build enough affordable homes for that type of buyer.
With it still being a strong seller’s market, that means you’ll need to be patient as a buyer. You don’t want to panic buy and end up with a home purchase you have regrets about. Given that specific areas or types of homes will have more demand, you may want to be more flexible with where you live or what you buy. A condo or townhouse a bit further away from where you originally planned on moving could be more affordable than a single-family home in an urban area. You may not find your dream home today, but a home that works for you right now can be a stepping stone to another home down the road.
WASHINGTON, DC — Despite inflation concerns and ongoing production bottlenecks, builder confidence edged higher in December for the fourth consecutive month on strong consumer demand and limited existing inventory, the National Association of Home Builders reported.
Builder sentiment in the market for newly built single-family homes moved one point higher to 84 in December, according to the NAHB/Wells Fargo Housing Market Index (HMI), released today.
“While demand remains strong, finding workers, predicting pricing and dealing with material delays remains a challenge,” said NAHB Chairman Chuck Fowke.
“The most pressing issue for the housing sector remains lack of inventory,” observed Robert Dietz, chief economist for the Washington, DC-based NAHB. “Building has increased but the industry faces constraints, namely cost/availability of materials, labor and lots. And while 2021 single-family starts are expected to end the year 24% higher than the pre-Covid 2019 level, we expect higher interest rates in 2022 will put a damper on housing affordability.”
Lumber futures prices soared to an all-time high $1,670.50 per thousand board feet in May, a twofold increase from a year earlier, reflecting strong demand for new construction and home remodeling, and pandemic-related problems limiting production. It then dropped to $456.20 in August, but has been surging since and is now back above $1,100, according to FactSet.
HACKETTSTOWN, NJ — Ongoing supply-chain disruptions coupled with labor shortages, higher material costs and emerging uncertainties wrought by COVID-19 are cooling the pace of kitchen and bath market growth in the wake of an exceptionally strong year in 2021.
According to the latest Market Forecast Report issued in recent weeks by the National Kitchen & Bath Association, the 2021 kitchen and bath industry posted healthy, double-digit gains over 2020, although growth projections were “pared back a bit” compared to the NKBA’s previous (July 2021) forecast, “as lingering issues caused by the pandemic seem to be catching up to consumer sentiment.”
The NKBA projected total 2021 revenues of $167 billion, a 19% increase over the $141 billion that was posted in 2020, but lower than earlier forecasts, which predicted that full-year revenue totals would reach $171 billion.
“2021 has been like none other for our industry, as strong growth across virtually every sector led to record revenues,” said Bill Darcy, CEO of the Hackettstown, NJ-based NKBA. However, some homeowners, faced with price increases related to supply chain disruptions, “are deferring projects until they’ve enough saved to get exactly what they want, or in the hope that costs will come down,” Darcy added.
The NKBA reported a nearly 10% year-over-year growth in the kitchen and bath remodeling sector in 2021, and a 26% growth in the new construction sector. Premium projects were up by more than 22%, while low-end projects grew about 11%, “suggesting a cooling of the DIY trend,” the NKBA said.
“These findings are very encouraging and indicate that…growth should be sustained into 2022,” Darcy said.
In related news, the latest NKBA/John Burns Real Estate Consulting “Kitchen & Bath Market Index,” issued in December, remained in “solidly expanding territory,” but cooled from the record number posted in the previous quarter. Expected future activity “also tailed off a bit,” having peaked in the first quarter of 2021, reported the NKBA and John Burns.
“In relative terms, the outlook remains quite positive,” with association members projecting about a 9% sales gain in 2022 – “impressive if it holds true, given 2021’s strong growth,” said the NKBA, adding that supply chain disruptions, cost of materials and availability of skilled labor are hampering the industry’s ability to take full advantage of strong demand…as NKBA members scramble to meet client needs, with most resorting to brands they’ve never previously used.”
Other findings of the NKBA/John Burns Report were as follows:
• The challenging business environment has forced the industry to become “supplier/vendor agnostic” – prioritizing product availability above other factors. The industry has also moved toward sourcing more domestic-based products in an attempt to circumvent global supply chain issues. Manufacturers are prioritizing high-value products to protect profit margins while stockpiling excess materials to help ease lead times and overall constraints.
• The kitchen and bath industry continues to feel the pains of ongoing supply chain challenges. Port congestion is further compounding strained supply chains that are still recovering from the effects of Winter Storm Uri and Hurricane Ida, while labor shortages are causing delays in the trucking industry. Meanwhile, lead times for domestic and foreign raw materials are well over 6+ weeks and has many within the sector struggling to keep up with demand in today’s economy. As a result, product backlogs extend well into 2022 as these difficulties prevent those in the industry from staffing full production schedules.
• Even in the face of ongoing challenges, the industry remains cautiously optimistic about the health of the sector. Despite projects being pushed into 2022, the industry is continuing to see demand for building and construction projects as 84% of firms report low postponement rates and 90% report low cancellation rates relative to their overall project volume.
