The real estate market may finally be sliding back into the buyer’s favor, new data shows. According to the National Association of Realtors, existing home sales dropped in January despite an increase in houses on the market.
The NAR reports that existing home sales dropped by 1.2% in January, coming down to an adjusted annual rate of 4.94 million units. That’s the country’s lowest level of existing home sales in the last three years. Only the Northeast saw a rise in housing sales.
But this shift isn’t necessarily bad. Housing sales may have dropped, but Americans aren’t any less interested in buying a home. They just can’t afford to buy one now that skyrocketing home prices have become the norm.
Housing prices have been climbing for the past 83 consecutive months. The median price of an existing home jumped 2.8% in January to $247,500, the smallest increase since February 2012.
These high housing prices and low housing supply have led many investors to build homes rather than buy them. Lumber alone constitutes 40% of building materials and there are only four common metal types used in the U.S. construction industry.
The average American home may have tripled in size over the last 50 years, but constructing a new home may be less expensive than buying one.
In Spring 2018, over 50% of the largest housing markets in the U.S. were considered overvalued. That means their prices were actually 10% higher than what’s considered a long-term sustainable level.
“The rise in mortgage rates has dampened buyer demand and slowed home-price growth,” said Frank Nothaft, chief economist at CoreLogic, in an interview with CNBC.
“Interest rates for new 30-year fixed-rate loans averaged 4.9% during November, the highest monthly average since February 2011,” said Nothaft. “These higher rates and home prices have reduced buyer affordability.”
Nela Richardson of Edward Jones Investments and former chief economist at Redfin also points out that, although housing supply is increasing, the supply is only increasing at the price points that aren’t affordable to millennials or first-time homebuyers. And the Harvard Joint Center for Housing Studies predicts that millennials will form 23 million new households over the next decade.
Many home buyers couldn’t find a home that fit in their budget in 2018, Richardson said, and that’s not likely to change this year, either. “[That] has been persistent for the last five years,” she said.
In 2019, Richardson says it’s likely that mortgage rates will come down considerably, which is a good advantage for buyers. But one area where both buyers and sellers could see savings are in real estate agent commission fees.
“I understand the value of the real estate agent but there is a point where technology can improve and make that technology more efficient, lower cost and that is the ultimate hope for home buyers and sellers going into tomorrow,” said Richardson. “But we’re not there yet.”
It’s worth point out, too, that although the housing market may be swinging back in the favor of the buyer, it’s not swinging so far to destabilize the market. Rather, the market is evening out to meet the needs of supply of demand.
“Moderating home prices combined with gains in household income will boost housing affordability,” said chief economist at the NAR Lawrence Yun, “bringing more buyers to the market in the coming months.”