Based on the numbers from June 2018, it appears there may be a housing market turnover as demand increase for new single-family has declined over the last two years. Indicated by fewer new homes built in addition to a slight decline in the consistent upward trajectory of home sales and a consistent increase in the demand for single-family rentals. What exactly does this mean for the real estate market as a whole?
Increase in Demand Led to Higher Prices
A housing market turnover could be partly due to prices for new single-family homes rising with demand. This didn’t occur only because builders were able to charge more for homes as demand increased. You’ve got to take it a couple of steps further down the housing supply chain to understand the whole picture. As demand for homes increased and more were built, demand for homebuilding supplies also increased. Prices for supplies increased with demand, leading to increased demand and prices in the industries that supply materials for those supplies.
Higher Prices Have Led to Fewer New Home Sales
As demand and prices increased, builders charged more for new homes. It seems that those prices have potentially reached a tipping point of sorts. Now, average people are becoming increasingly unable to afford a new home signaling that perhaps the cost of a new home has risen faster than the incomes of many Americans.
It seems that builders slowed down the building of new homes, as evidenced by a decrease in permits issued, even before we saw this housing market turnover of new homes sold, suggesting that maybe they saw this coming. It may also suggest that the price of supplies and land on which to build are rising beyond what will allow builders to make a profit.
People are Happier Renting Than Before
We know that more people are renting single-family homes than before. Changes in our culture that glorify the flexibility of renting and have led to fewer people settling down to start families or, in the least, delaying starting a family plus gaps between average incomes and the cost of living have contributed to higher demand for rentals. High home prices certainly don’t encourage people to buy rather than rent and may have led to an acceleration in the housing market turnover.
It’s also perfectly feasible to assume that consistently low inventory of new homes and previously existing structures due to high demand for single-family homes has led to people giving up on buying and deciding to rent instead.
What Does Turnover Mean for the Housing Market?
The slowing of new home building, a decline in the up-‘til-now consistently increasing the number of home sales, plus an increased demand for rentals may be indicating that the crazy, fast-paced, seller’s market that has been the norm in real estate over the past few years of economic growth may be slowly grinding to a halt.
In the meantime, it’s likely that we’ll see prices decline just a bit if demand doesn’t continue rising as fast as it was before. Trends in home sales, prices, and rental statistics over the next several months will help produce a clearer picture of where the market is headed and if a housing market turnover is in the future.
With the real estate market constantly changing, it’s important to stay in the know. Trends show more and more people are renting homes and if you think renting might work for you, speak with your financial consultant to go over options.