Lack of Supply and Rising Costs Impede Path to Homeownership
Supply of homes on market tightens. The number of existing houses listed for sale retreated 32.6 percent year over year in February, the largest annual drop ever recorded, pushing inventory to an all-time low. The few listings that come to market are snatched up quickly, cutting the average days on the market to a new low of 20 days. The availability of residences affordable to most renters, those under $250,000, is particularly challenging, keeping many in rentals longer. Economic uncertainty due to the pandemic has reduced the number of homes being listed for sale as more households are delaying decisions to upsize or downsize and fewer people are relocating for employment. In addition, more homeowners have refinanced during the low interest rate climate and are hesitant to move. The lack of supply contributed to the monthly sales of both existing and new homes falling 6.6 percent and 18.2 percent, respectively, and pushing prices to a new high.
Cost to purchase a home continues to escalate. Beyond the extremely low supply of available houses, potential homeowners are also confronted with rising home prices and the increasing cost of financing. The median price of an existing residence jumped 16.2 percent year over year in February to $334,500. New homes are also becoming more expensive as the median price climbed 5.5 percent to $347,200. In addition, the cost of financing is heading higher. The 30-year mortgage rate climbed above 3.1 percent in recent weeks, up 40 basis points from the beginning of 2021. Escalating costs are putting increased pressure on housing affordability and pricing more potential homeowners out of the market, keeping them in rentals.
Winter storms hamper housing construction. Inclement weather across a large swath of the nation contributed to a 10.3 percent drop in residential starts in February. Single-family fell 8.5 percent while multifamily was down 15.0 percent. On an annual basis, starts have fallen 9.3 percent, also driven by a severe cut in the multifamily segment. Permitting activity fell in February, reversing most of January’s gain. This is a weather-related hiccup that will exacerbate the for-sale inventory shortage in the near term, but the long-term construction trend will continue up. Annually, permits are up nearly 20 percent.