Home Inventory Plummets by Nearly 40% from Pre-Pandemic Levels
With 39% fewer properties on the market than five years ago, the inventory shortfall in the U.S. housing market is getting worse. The overall number of homes available for purchase is down 6% year over year, which is the most significant drop in 13 months. The lack of homes results from an extended slump in home construction over the previous ten years and the erratic movement of mortgage rates, which originally achieved record lows during the pandemic but subsequently increased beyond 7%.
Instead of selling their homes and buying in the current market, homeowners are choosing to preserve their low-rate mortgages. Even if there is a shortage, there is still a lot of interest from prospective purchasers, as evidenced by an 8% increase in mortgage purchase applications and a surge in Google searches for “homes for sale” by internet users.
Home prices have mainly remained steady due to the high demand for homes compared to supply, with the median transaction price only slightly declining by 1.1%. But there have been noticeable differences in sale prices between metro areas. The most significant price decrease over the past year was 13.1% in Austin, Texas, while the biggest price increase was 8.9% in Miami. Additionally, other components of home sales have been impacted by market dynamics. Homes now spend an average of 28 days on the market, up from a nearly record-low 19 days. The average sale-to-list price ratio was 99.9%, meaning that, on average, homes are selling for virtually precisely what they are listed for—about 35.9% of homes sold above their final list price.
May Housing Starts Surge by 22%
The U.S. housing market is showing signs of solid growth, with housing starts surging by 21.7% in May, reaching a seasonally adjusted annual rate of 1.63 million units. This significant increase marks the largest monthly jump since 2016 and the eighth largest since 1959. Although year-to-date starts are down 15.5%, the 5.7% year-over-year increase is the first annual gain since April 2022.
The rise in housing starts is complemented by a positive shift in residential builder sentiment, as indicated by the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index, which climbed five points to 55. This index tracks builder confidence in the market for newly constructed single-family homes. It has been steadily increasing for the past six months, surpassing the neutral threshold of 50 for the first time since July 2022.
Single-family starts experienced a notable boost, rising by 18.5% to an annualized pace of 997,000 units, reaching an 11-month high in May. The southern region of the United States played a significant role in driving this growth, with single-family starts increasing by 21% compared to April. Additionally, multifamily starts rebounded in May, growing by 27.1% from the previous month, and the number of apartments under construction reached the highest level since 1974.
These positive housing market indicators are expected to alleviate inflation concerns by increasing housing supply, thereby reducing shelter inflation, which has been a leading contributor to the Consumer Price Index’s growth.
Potential 5% Growth Expected in 2023 Home Prices
Competition in the housing market is driving home prices, leading to a revision in Zillow’s price growth forecast. Zillow’s Chief Economist, Skylar Olsen, predicts a potential 5% increase in home prices throughout 2023, a significant jump from their previous forecast of 1.5%. The latest report from Zillow shows that U.S. home values experienced a strong monthly appreciation of 1.4% from April to May, the highest since June 2022.
The current typical home value stands at $346,856, reflecting a 0.9% increase compared to last May and a 3.4% rise from the recent low in January. However, the rising prices have resulted in higher monthly mortgage costs, with a new loan for an average U.S. home costing nearly $1,800, marking a 22% increase from the previous year and the second-highest amount ever recorded, surpassed only by October 2022.
Vaimberg, Ron. “Weekly Newsletter – January 6, 2023.” Ron Vaimberg International, Ron Vaimberg, 6 Jan. 2023, https://rvionline.thinkific.com/courses/take/rvi-weekly-newsletter/texts/41523497-weekly-newsletter-january-6-2023.