The number of existing home sales plunged in April, surprising economists who expected a moderate drop last month. Real estate experts say this indicates shortages of everything from lumber to kitchen appliances are spilling over to an already hot market – good news for sellers, but a situation that threatens to push more and more homes up. buyers, despite mortgage rates remaining close to historic lows.
Sales of existing homes fell from $ 6.01 million to $ 5.85 million annualized, the National Association of Realtors said on Friday. The consensus was for a small hike to 6.02 million.
The drop can be attributed to a lack of inventory, said Nick Bailey, director of clientele at RE / MAX. It’s a perfect storm for homebuyers: Builders grapple with widespread and unprecedented supply chain bottlenecks, just as the growing Millennial population seeks to transition to larger houses to accommodate families.
Builders face shortages of wood and copper to PVC pipes and kitchen appliances.
“It’s the millennial population that runs this market,” Bailey said. “A lot of them are looking to new build, but because of labor and supply costs, builders are very deliberate about how quickly or slowly they get things to market. ” The wood shortage has been well documented, but there are a host of other supply chain bottlenecks plaguing home builders, from copper for wiring to PVC pipe – even for inputs that are often required. for granted like kitchen appliances.
This combination of factors means that the sharp escalation in house prices last year is expected to continue. According to the National Association of Realtors, the median selling price of an existing single-family home hit a record high of $ 334,500 in March.
“We have a serious housing shortage in America,” said Lawrence Yun, the trade group’s chief economist. The problem predates the arrival of Covid-19, he said, and has been greatly exacerbated by a sudden influx of buyers seeking more space while locked in in the early months of the pandemic and by closing construction sites, factories and sawmills.
“Supply chain issues have added several weeks to the time it takes to build a house,” said John Burns, CEO of John Burns Real Estate Consulting. Large builders raise prices for the items they need for construction, and then pass those costs – and even some – on to buyers who have little ability to negotiate given the scarcity of supply available, while smaller builders builders are often fully locked down, Burns said. .
“Suppliers need to take care of their biggest customers first,” he said. “The surge in demand that allows builders to drive up prices and puts even more pressure on the supply chain as demand for materials has increased.”
Even with much of the U.S. economy returning to normal, these aftermaths will continue to have a long tail, experts predict. Department of Commerce data released earlier this week revealed that the number of housing starts fell unexpectedly to 1.57 million annualized, from about 1.7 million.
“We have seen continued appreciation in most markets,” Bailey said. Too many buyers looking for too few properties trigger bidding wars, and in some neighborhoods the competition is so fierce that many homes are sold before they even hit the market, he said.
According to Zillow, nearly half of people who sold homes in the last month accepted an offer within a week. “As millennials age in the peak years of home ownership, we expect housing demand to be very strong in the years to come,” said Chris Glynn, senior economist at Zillow.
While low interest rates contribute to continued appreciation, even that can’t always make a mortgage a financial reality for buyers, Glynn said. “The challenge that interest rates cannot solve is the only barrier to entry – the down payments,” he said. “The price hike certainly adds to the challenge of finding that down payment,” he said. Programs that allow buyers to deposit less than the traditional 20% can help, but in some markets, he said, potential buyers find it puts the cost of a monthly mortgage payment out of reach.
“Considering the housing shortage and the high demand, there is no reason to believe that house prices will go down,” Yun said.
Yun suggested that President Joe Biden’s infrastructure plan incorporates initiatives to attract buyers to homes.
“This is not a good result for the country,” Yun said. “We want to make sure that people who make financially responsible decisions should have access to home ownership. We need to build more, and in a more consistent way, so that house prices go down,” he said.