2020's Home Inventory is Increasing
The real estate market has been heating up. There are plenty of people looking to buy homes. Some people are looking for a new home to make life more bearable during the pandemic. They are looking for houses with bigger backyards or rooms that they can turn into a home office. Some people are trying to take advantage of historically low mortgage rates and buy their new dream home, whatever that might be. Although lots of people are looking to buy homes, there are not as many looking to sell their home. This gap between supply and demand has caused housing prices to increase. However, this trend might be changing. Home inventory is increasing and the market might soon be awash in options for potential home buyers.
New Home Construction is on the Uptick
One reason that home inventory is increasing is that we are seeing a boost in new home construction. At the beginning of the pandemic, new home construction dropped to a five year low. Many forecasters were worried that this wasn’t just a blip on the radar. However, things have turned around significantly. Housing starts are up dramatically from where they were in May. From May to June, the number of new homes in construction increased by 17%. Some of the new home construction is a result of delays by the pandemic. Homes that were supposed to be built earlier were never started because of pauses in different industries. However, as restrictions are relaxed, homebuilders are making up for lost time.
These numbers should get better even after home builders finish projects that were already on the table. Permits for newly-built homes increased by 2.1% from May to June. Home builders are clearly confident that there is enough market demand to justify building new homes.
There are a few reasons for this confidence. First, mortgage rates are low and will probably remain that way as our nation deals with the economic impact of the pandemic. These low rates are enticing potential buyers to get in where they fit in and purchase the home of their dreams. Second, these newer homes are being built to give buyers what they want. According to George Riatu, senior economist for Realtor.com, new homes are being built with “the features home buyers are seeking after the pandemic quarantine.” Home builders are including home offices and larger kitchens, to account for virtual work home cooked meals. They are also being built with more access to the outdoors and in suburban settings that offer a short commute to city centers.
Obviously, it takes time to build a home and put it on the market. However, the increase in new home construction will eventually give buyers some relief. This boost in home inventory might not drop prices significantly, but it will probably prevent them from skyrocketing.
Foreclosures on the Horizon
New home construction is certainly adding to home inventory. Something that will probably add to home inventory is a foreclosure crisis in the making. In Massachusetts alone, 654,000 households missed their rent payment or mortgage payment in July, or expect to in August. The rest of the country is not doing any better. According to the United States Census Bureau, about 25% of Americans are in the same situation. If unemployment remains high, there might be a wave of foreclosures on the horizon. When this happens, there will be a bunch of bank-owned homes for sale. Experts who are predicting a dramatic increase in foreclosures also assume that this will decrease home prices in 2021.
But not everyone is certain that foreclosures are inevitable. For starters, some experts argue that this period of economic uncertainty is nothing like the Great Recession of 2008. They argue that the economy will improve once we contain the pandemic, which will prevent a flood of foreclosures.
The other thing that might stave off foreclosed homes from entering the market is government actions. Since the beginning of the pandemic, a patchwork of federal, state and local ordinances have frozen foreclosures and evictions. Some of these have expired, whereas some have been extended. It is impossible to predict how long these protections will last. However, even if these freezes are extended for the life of the pandemic, an increase in foreclosures might still occur. The reason is simple. Right now, lots of people are behind on their mortgage payments. These freezes prevent them from being evicted or having their houses foreclosed on. What they do not do is forgive any of their missed payments. Once these freezes end, they are still responsible for payments that they have missed. Unless these freezes are coupled with forgiveness, government policies might just be delaying the inevitable.
When this wave of foreclosures might happen, let alone if it will happen, is hard to guess. However, if it becomes a reality, there will be a lot of homes on the market in a quick period of time. Let’s be clear … This is a tragic situation. It is horrible that people might lose their homes. I take no joy in writing this. These are just the facts. For those that have been spared the worst of the financial pain, they will be in a better position to buy a new home. The dramatic drop in available homes to purchase should have a substantial impact on decreasing home prices. This is great if you are going to be in a position to buy a home. This is not so great if you are going to be trying to sell your home.
Bottomline
The real estate market is still going strong. According to Sal Guatieri, senior economist at BMO Capital Markets, “The housing market is proving to be one of the more resilient sectors of the economy.” How this changes, remains to be seen. What is clear is that the throngs of home buyers might start seeing some relief as home inventory increases. Hopefully it is entirely because new homes are being built and not because people are losing their current homes.
