The housing market is shifting, and faster than builders and sellers can adapt.
During the pandemic, low mortgage rates and increased demand led to a surge in the housing market, causing prices to soar and competition to rise. However, the tight market led to sky-high prices and an eventual rise in mortgage rates, which ultimately priced out millions of would-be buyers. Now, builders are faced with an excess of unsold homes, Bloomberg reported.
The once nationwide housing shortage — coupled with the boom brought on by the pandemic — pushed the market to a pressure point. Home prices rose by 20.6% year-over-year in March of 2022, marking the largest increase in the 30 years of record-keeping, according to the Joint Center for Housing Studies tabulations of CoStar and CoreLogic Case-Shiller Home Price Indices data.
However, by early July, the supply of homes versus demand had plunged to the lowest level since 2012, according to a survey from the National Association of Home Builders. Now builders and sellers are scrambling to adjust to the dramatic market shift as buyers back out of contracts in record numbers.
“It has become a very competitive market for builders where they are trying to offload any standing inventory,” Ali Wolf, chief economist for Zonda, told Bloomberg. “We may see a period where supply may actually exceed demand for a while in some of the markets that were the most feverish over the past two years.”
Related: 4 Reasons Why Home Ownership Is Still a Fantastic Investment
The plunge has been months in the making. In early June, real estate firms Compass and Redfin began rounds of layoffs, anticipating the market drop that’s now happening in real-time.
Kevin Brown, a Houston, Texas realtor, told Bloomberg that he has witnessed a significant shift in the market. What used to be jam-packed days of back-to-back appointments has dramatically slowed, and now he has five new homes completed for sale, another 55 in construction, all unsold.
Still, the disparity between prospective buyers and unsold homes presents a new challenge for real estate — but possibly a shift in buying power prospective homeowners had been waiting for.
In June, as home and rent prices skyrocketed, the annual income required to qualify for a median-priced home increased by $28,000 since the previous year, according to Harvard researchers, but with an excess of empty homes, prices are already dropping.
Related: New Reports Suggest Home Prices Could Begin Dropping Soon
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