This past weekend during an open house, we listened as a prospective buyer shared his concern about purchasing a home in this current Sellers’ Market. His is a common concern that we have heard many times in recent months. I have written about this in previous blogs, but it is an ongoing conversation, and many are skeptical about what comes next in this market?
There are various opinions, and though some differ, most “experts” continue to point at the main factor that sets any price in any industry: Supply vs. Demand. When I read all the research and then watch what is happening around us here in west Ventura County, all the dots of a stable real estate industry are connected. Yes, prices have risen dramatically over this past year and a half, but the supply is still limited, and the demand is still strong: Macroeconomics 101.
A recent article in the Wall Street Journal speaks to the idea that our current market is experiencing a supply problem, not a demand problem related to new home construction. I also addressed this in a blog I wrote a few weeks back: Housing Supply: Conditions, Causes, & Future Considerations. The short version of that blog is the build-up of inventory that occurred before the global economic crash left a significant glut of housing when the foreclosures started rolling in. With those foreclosures, the homebuilding industry had to put the brakes on. Then, just as they were catching up, the pandemic hit, grinding them and their suppliers to a stop. Now they are back to work again, but it will take some time to get inventory up.
The Wall Street Journal article reports that homebuilders are scrambling to catch up. The article quotes David Auld, CEO of D.R. Horton, the nations largest homebuilder since 2002, as saying:
“Through our history, to have somebody walk into our models and to tell them, ‘We don’t have a house for you to buy today, is something that is foreign to us.”
Danielle Hale, Chief Economist for Realtor.com, acknowledges that there has been a recent slowdown in sales; this has been a supply problem, not demand. Responding to the recent uptick in listings coming on the market, she says:
“. . . if these changing inventory dynamics continue, we could see a wave of real estate activity heading into the latter part of the year.”
Again, the buyers are there; we just need more houses to sell them. So when we speak to someone in our open house concerned about buying in a Seller’s Market, our take is to go for it. Take advantage of interest rates that have again fallen below 3%, and remember that as more inventory begins to come onto the market, the “demand” side will be more manageable. But more importantly, even with the homebuilding industry in full gear, it could take at least a decade to catch up. Until it does, we are going to have that supply shortage keeping home prices up.
Is the market softening? We hope so. Is it poised to crash? Not as long as there is a shortage of homes.