The real estate market continues to be a hot topic in mid-2023, with sellers maintaining the upper hand due to a shortage of housing supply. Despite initial predictions by some experts, the balance between buyers and sellers has yet to shift in favor of homebuyers. Let's delve into the current state of the housing market, explore the factors driving these trends, and discuss potential implications for both buyers and renters.
Sellers Holding the Reins Amid Scarce Supply
The anticipated surge in homebuyer advantage has yet to materialize this year. While higher interest rates did put a damper on buyer enthusiasm, the expected drop in home prices hasn't occurred on a significant scale. In a surprising turn, the median sale price of existing homes reached a new high in May 2023, hitting $389,400 – the highest level since July 2022. This upward price momentum is fueled by a severe shortage of available homes on the market. With fewer alternatives for buyers to choose from, competition remains fierce in most metropolitan areas.
Inventory Woes Continue to Plague the Market
The scarcity of homes for sale is a persistent issue. In May, the number of existing homes listed for sale dropped approximately 7 percent year-over-year. More strikingly, this figure is over 40 percent below the average for the same month over the past decade. This shortage of available properties has created a significant obstacle for a well-functioning housing market. Interestingly, since the 1980s, the number of existing homes for sale had never fallen below 1 million until the onset of the pandemic.
The Uncertain Path to Increasing Inventory
Resolving the housing shortage presents a complex challenge. Many homeowners, having secured low-rate mortgages prior to the spike in borrowing costs, are disincentivized to sell unless there's a compelling reason to do so. While new developments could potentially increase housing supply, the elevated costs of materials and labor, coupled with high debt levels, make new homes less feasible for many buyers. This situation leaves prospective first-time buyers with limited affordable options, often leading them to remain in the rental market.
Renters' Incomes Reach All-Time Highs
Transitioning from renting to homeownership has always been a significant hurdle, and the current market conditions amplify this challenge. As a result, renters' median household incomes have surged to an all-time high of around $47,600 in the second quarter of 2023. This financial stability among renters supports the absorption of newly-constructed rental properties. These rentals not only offer amenities but also provide flexibility that might be lacking in ownership.
A Turnaround for the Multifamily Sector?
The multifamily sector has faced challenges in recent quarters, with rising vacancy rates and stagnant rent growth. However, preliminary data from the second quarter of 2023 suggests a potential turning point for this sector. Vacancy rates decreased, and lease applications per unit increased, indicating renewed interest in multifamily living. The velocity of lease renewals per unit also hit a nine-month high in May, signaling optimism for the multifamily market amid an uninviting single-family home market.
Costs Rise for Construction Materials
Notably, the cost of construction materials is on the rise once again. Between April and May, the construction cost index saw a 0.9 percent increase, a notable contrast to the 0.1 percent uptick recorded from July 2022 to March 2023. Concrete and steel have been the driving factors behind this rise. Interestingly, this hasn't significantly affected home builder confidence, which reached a 10-month high in May.
As the housing market of mid-2023 unfolds, sellers are maintaining their advantage due to limited supply, while homebuyers navigate challenging conditions. The rental market sees growth as renters' incomes rise, and the multifamily sector shows signs of rejuvenation. The unpredictable landscape of the housing market prompts us to keep a watchful eye on how these trends evolve and how they shape the future of real estate.