Developing Trends in Single Family Housing

Developing Trends in Single Family Housing

The number of existing homes for sale continued to decrease in the beginning of 2022 with around 800,000 houses compared to an average of about 1.6 million listed homes during the same month during 2015-2018 timeframe.  There are several factors driving this trend which affect both buyers and sellers. Very strong buyer demand for single-family houses because they want to work from home and need the space and has reduced the inventory and in turn driven up prices. The rapid appreciation has made it difficult for owners to move up to nicer houses which would help free up some entry level homes. I think in the future the number of elderly people will enter the elderly communities, but that migration was slowed by the virus. So, for now it seems owners prefer to stay put. 

Home prices are not expected to decline much in the foreseeable future since buyer demand continues.  This has caused the younger age groups to have to rent longer due to affordability.  Even though the wages and salaries have gone up, the prices of housing have gone up at a much faster pace.  This will keep multifamily vacancy tight and could also benefit self-storage.

The 30-year mortgage rate approached 4 percent in February 2022 which is up about 1% in the last 3-4 months.  However, the house prices continue to rise since the demand is high and supply is low.  We believe that if 30-year rates get into the 5%+ range then the housing price appreciation will stall and possibly decline somewhat.  Historically, higher mortgage rates suppress buying activity as financing becomes more expensive.  If the rates increase and the price increases slow then more people will list their homes especially second homes or investment properties.  However, right now people are sitting and waiting to see what the market holds.

As we all know the construction cost continue to rise on almost all components of a house from lumber to windows to roofing.  To make matters worse, the labor costs are skyrocketing.  The index tracking construction costs jumped to a new record in February 2022 and is now up more than 10% over the past year or so. 

We all know that at some point this surge in housing prices will slow or even reverse as the supply and demand imbalance corrects itself.  The question is how long will it take and will there be another black swan event that changes the direction of the single family housing market.