Balance Is Returning to the Housing Market
Is the frenzied seller’s market coming to an end?
In the last few years, most discussion around the real estate market centered around the frenzy of buyers, the difficulty of beating out multiple bidders to buy a home, and which sacrifices buyers should prepare to make in order to make their offer competitive. In many areas, those conversations have finally drawn to a close as balance has begun to return to the housing market.
Higher Interest Rates
One of the largest catalysts for this drastic shift in the housing market is the rise in interest rates. Mortgage rates have increased drastically throughout 2022, leaving the prospect of buying a home a bit less attractive for many.
One driver of the historic demand in 2020 and 2021 was the record-low mortgage rates, which could make hundreds of dollars of difference in monthly payments. Now, while interest rates aren’t quite the highest they’ve ever been, they are far from being a motivator for buyers.
Dropping Builder Confidence
In May, builder confidence for single-family, newly-built homes fell drastically. At the same time, even after the drop, builder confidence remains more positive than negative, indicating it’s far from time to panic. Even after the drop, builder confidence levels remain high compared to the last ten years.
Affordability Challenges
Drivers behind this drop in builder confidence include high material costs, steady home appreciation, and other factors that create home affordability challenges for the average family. With less than 50% of new and existing home sales being affordable for a typical family, it’s no wonder why demand is taking a hit.
At the same time, that appreciation and the demand that remains still indicates that the market hasn’t done a complete 180. Most regions are still far from classifying as a buyer’s market, as buyer demand still holds strong even despite affordability challenges. The fact remains that countless millennials are entering the housing market, while home shortages continue to throw off the balance between supply and demand.
Variety with Location
While these statistics reflect the average builder sentiment nationwide, they can’t quite give a full picture of each and every location. Even as demand dies down, a few cities still stand out with a higher influx of buyers, even despite the same relative affordability issues. Cities with a lower cost of living and plenty of new job opportunities, like North Carolina’s Research Triangle area, still sit firmly in the realm of seller’s market. With steady demand from young professionals and families alike, balance is a bit more slowly restored in these high-demand areas.
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