Why An Increase In Housing Supply Might Not Change Home Prices
We have all witnessed an incredible housing market over the past year that has no signs of slowing. During this past year, we have seen home prices increase dramatically. As we have discussed in our blog before, home prices are determined by supply and demand. Demand has been sky high because mortgage rates dropped to historic lows and have hovered near there ever since. At the same time, the number of houses available to buy has been incredibly limited. Demand has exceeded the supply, which has caused home prices to skyrocket. Recent news suggests that the housing supply might be increasing in the near future. However, there is good reason that future increases in the number of houses available to buy will not decrease home prices. The team at Streamline Realty is here to breakdown why you should not expect home prices to fall off a cliff anytime soon.
The State of Today’s Housing Supply
The supply of homes to buy is incredibly small as today’s housing inventory is at record lows. Today’s low inventory has been wonderful news for homeowners who have seen the value of their homes go through the roof. Home sellers have also benefited tremendously because it has left home buyers fighting one another to purchase the few homes on the market. Bidding wars are now the norm and not the exception, which is great for home sellers. At the same time, today’s inventory of available homes to purchase is frustrating for home buyers. It means that you have to give yourself multiple options of homes you are interested in. You also need to craft the perfect offer to buy a home and be willing to go even higher. More importantly, it puts a premium on working with an experienced and professional realtor who knows the market inside and out.
What the Future Holds for Housing Inventory
While today’s housing inventory is incredibly limited, the only constant is change. Inevitably, housing inventory will increase and home buyers will have more homes to choose from. We are already starting to see the beginning of a housing construction boom. Housing developers want to take advantage of the market demand for new houses and are preparing to build new projects. Homebuilding is up to a 15-year high as developers rush to satiate the demands of home buyers. There are currently up to over 1.7 million new units of housing either under construction or permitted for construction as of last month. As the winter weather ended, construction picked up nearly 20% from February. These March construction numbers were also up over 30% from the same time last year. By all metrics, new home construction is increasing at a rapid rate. The question is, will it be enough?
Don’t Expect Increased Housing Inventory to Decrease Home Prices
Going back to the discussion of supply and demand, it would make sense to assume that an increase in the number of homes for sale would decrease prices. However, there are a few reasons that you should not get your hopes up for this scenario.
The first reason is that the supply of houses that will make its way onto the market will take a sizable amount of time. While the nation is opening up more and more, there are still delays on the construction front. Even if there were to be some relief in home prices, it will not be for a long time.
The second reason why increased housing inventory will not reduce the price of homes is that demand to buy a home is through the roof. Right now, a lot of homes that are being constructed have already been purchased by home buyers. These houses that are under construction will not even make it to the open market because they will be bought ahead of time. In turn, this additional supply of homes will not make enough of a dent in the demand to decrease prices. It might slow down the increase in home prices, but it probably will not decrease them.
The third reason why an increase in the number of homes being built will not result in declining home prices is that houses are more expensive to build. The price of lumber has been skyrocketing, which is making it increasingly costly to build a house. If it costs more to build a home, then the house will have to be sold at a higher price, regardless of other market forces. So, even if more homes are available, the new homes that will be for sale on the market will come with a higher price tag.
Final Thoughts
Even though there is a limited number of homes to buy on the market, it is a fantastic time to buy a home. The rock bottom mortgage rates combined with rising prices means that buying a home now will be a great financial investment. Low mortgage rates help you spend less over the life of your home loan. Rising prices means that your home value will increase, which will help you build assets. So, if you have been thinking about buying a home but have been waiting for prices to drop, you will probably find yourself waiting a lot longer than you would expect. Instead of waiting for prices to drop, it is better to just jump in now and let the rising prices increase your new home’s value.
The key to navigating this market is taking it seriously and working with a real estate professional who can help you take advantage of it. Not all realtors are created equal. You need one who knows your market inside and out, and is able to help you make strategic offers to sellers. If you are thinking about buying a house and want a realtor who can help give you an advantage in a tough market, contact us! The team at Streamline Realty is here to make your dream of buying a home a reality.
