Affordability is still low due to nearly 7% mortgage rates, a limited supply, and a lack of available properties due to homeowners who are staying put. The lowest percentage of home sales in at least ten years, according to Redfin, was just 1% in 2023.
However, recent supply-side data raises the possibility that there is cause for optimism.
Consider the huge developer D.R. Horton. In comparison to the same quarter last year, the firm’s purchase commitments increased 37% to 22,879 properties in the three months leading up to June. That considerably exceeded Wall Street predictions. Additionally, it stated that year over year, its cancellation rate decreased from 24% to 18%.
The bellwether construction company has raised its forecast from 77,000 to 80,000 dwellings closed in the fiscal year ending in September to as many as 83,300 homes.
The Commerce Department said on Wednesday that the number of dwellings started in construction in June increased slightly to 1.44 million, on an annualized basis. As a result, the average number of houses increased from 1.39 million in the first quarter to 1.45 million on average in the second, marking the first quarterly growth since early 2022.
According to the Wall Street Journal, Atlanta Fed analysts have revised their prediction for residential investment growth to 0.1% yearly growth based on this data.
This is the first positive quarter in more than two years. Additional growth in residential investment to begin the third quarter is also indicated by separate building permits data.
Additionally, earlier this week a key indicator for homebuilder mood reached its highest level in 13 months as more and more purchasers expressed optimism about new building.
Certainly, even the most optimistic building predictions for the foreseeable future won’t lead to anything resembling a supply glut. Since more than ten years ago, there have been supply problems. Currently, inventory levels are still historically low. According to National Association of Realtors data, 1.08 million houses were listed for sale in June, a decrease from 1.92 million in June of 2019 before the pandemic.
Nearly a quarter of homeowners have mortgages with interest rates under 3%, which is close to the greatest percentage ever. Current owners who secured very low mortgage rates years ago are loath to leave. That has maintained prices even as demand declines as a result of increasing borrowing costs.
It’s feasible that a future decrease in mortgage rates to a level closer to 5% might increase inventory on the market and open the door for additional purchasers. However, it’s also likely that affordability may remain low because an increase in demand may cause housing prices to rise; however, this could be countered by increased development if it picks up in places with a shortage of supplies.
Lawrence Yun, chief economist for NAR, said that sales were down 23% in the first half of the year. Even though there were the regular life-altering events, fewer Americans were moving. Pent-up demand will undoubtedly be satisfied shortly, particularly if mortgage rates and inventories move in the right direction.
