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The Imbalance In Today's Existing Home Market

Insights Michelle & Ken Newsletter

The Existing Home Sales Report for March came out recently, showing that sales in the existing home market are still sluggish while prices remain high. This might seem odd, but there are reasons behind it.

Sales of existing homes in March were 3.7% lower compared to the same time last year, with a seasonally adjusted annual rate of 4.19 million. This drop isn't because people don't want to buy homes; it's more about not having enough homes available for sale.

In a healthy market, there's usually a 4-6 months' supply of homes for sale based on the current sales rate. The last time we saw 6.0 months of available supply was August 2012. Since then, it's been around 3.9 months on average, dropping to an all-time low of 1.6 months in January 2022.

The low supply hasn't dampened demand, and the median home sales prices have been going up, hitting a record high of $393,500 for the month of March. This might seem surprising given the increase in mortgage rates, but demand is still strong, thanks to a robust job market.

Several factors contribute to the low supply of homes for sale:

  • Many homeowners don't want to sell because they'll face higher costs due to today's higher mortgage rates and pricey homes.
  • Remote work options mean fewer people are moving, reducing turnover in the housing market.
  • Investment companies and individual investors bought up many homes during the Great Recession and turned them into rentals.
  • Building new homes is harder due to higher costs and labor shortages. In March, the number of new single-family homes started was down by 12.4% month-over-month.

The rise in mortgage rates has slowed down the rapid increase in home prices seen during the pandemic. However, some potential buyers are hesitant to enter the market fearing they might buy at the peak, remembering the losses suffered by many during the housing crisis.

One key difference now is that unemployment levels are low compared to then, which explains why supply is low and prices are high.

High prices and increased mortgage rates have made homes less affordable. The NAR's Housing Affordability Index stood at 103.00 in March after hitting a 10-year low of 91.4 in October 2023. An index above 100 means a family earning the median income has enough income to qualify for a mortgage loan on a median priced home with a 20% down payment.

Buyers and existing homeowners hoping to move are eager for mortgage rates to drop, which would ease affordability concerns. But even if rates drop, there's still a lot of demand competing for a limited supply of homes, so prices are likely to stay high.

Overall, the existing home market is stuck between tight supply and rising mortgage rates, making it challenging for both buyers and sellers. While the recent increase in rates slowed down sales and price growth, they're still lower than they were in the 1980s. If the job market remains strong and inflation is kept in check, prices should stabilize, benefiting both buyers and sellers. However, any significant increase in mortgage rates or a downturn in the job market could pose risks to the housing market.

In conclusion, we’ll stay optimistic while keeping an eye on the trends, knowing that challenges often bring opportunities.


Ken & Michelle

This information has been drawn from sources believed to be reliable. Every effort has been made to assure the accuracy of the information, however, the accuracy of this information is not guaranteed. All investing is subject to risk, including possible loss of money you invest. Diversification does not ensure a profit or protect against a loss. The information provided in this commentary is for informational purposes only and is not a solicitation to buy and/or sell. Investors must consider the investment objectives, risks, charges and expenses of any investment carefully before investing. Avisen Wealth Management (Member FINRA/SIPC) does not provide tax or legal advice. Please consult your accountant &/or legal counsel for guidance. Avisen Wealth Management, CA Ins License #0E52062