Do you remember the housing frenzy in 2021 and 2022 when people were making cash offers for homes without inspections or contingencies, and in some cases, sight unseen? Since the onset of Covid-19, home prices have risen 58% with the median existing home now selling for $429,000. Soaring prices have created an affordability crisis with the income required to purchase the median home reaching $110,000 as compared to median household income of just over $88,000.
The following chart depicts the numbers of sellers versus buyers. In 2022, there were 30% more buyers than sellers. Look how the worm has turned; there are now 58% more sellers than buyers-an all-time high!
The strongest buyer’s markets are Miami, Nashville, Houston, San Antonio, and Austin with the number of sellers exceeding buyers by 112% to 154%. According to Redfin, there are only six major markets in the U.S. that could be classified as seller’s markets: Nassau County, NY, Newark, Providence, Milwaukee, New Brunswick, NJ, and Montgomery County, PA.
According to the Shiller Index, prices are 1.5% greater than one year ago for the country as a whole. Redfin reports that the seller’s markets experienced a 4.2% increase compared to 2.3% in the buyer’s markets. Because three quarters of metro areas are considered buyer’s markets, the discrepancy between the two data sources is fairly minor. Regardless of the exact numbers, price increases have declined significantly versus the 6% annual rate that prevailed over the previous four years. However, they are still rising! The buyer/seller imbalance appears to be most impactful to the markets that have been unusually strong.
The 10-year U.S. Treasury currently yields 5.25% which has placed upward pressure on mortgage rates which now average 7.33%. The longer-term solution to the housing affordability problem is greater supply. While higher mortgage rates will exacerbate the affordability problem over the near-term, they may represent the catalyst that finally moderates the powerful uptrend in home prices.