Why Are Home Prices Still Going Up?

So the simple answer is the basic law of supply and demand. There is much more demand than there is supply and it looks as though that trend will likely continue for the immediate (6- 12 months) future.

The formation of new households (people getting together and looking to start families) is far outstripping the availability of existing or new homes. Further complicating the issue is supply chain issues and the rising cost of materials. So if you were thinking about looking for a home but were concerned with overpaying due to competition let’s look at some sobering math.

Why Waiting to Buy Could Cost You

The cost of buying a home has risen almost 14% over the last year and is predicted to be at least 10% (11.7% according to Zillow) over the next 12 months. If the median home price is around $350,000 this means that waiting 12 months could raise that price to $385,000. It is also predicted that interest rates are likely to be closer to 4% at that time which will add to the expense. Unless there is a massive surge in new construction coupled with an increase in the deformation of households (divorce, deaths & moving into  assisted living to name a few reasons). For a comparison to normal sustainable appreciation it is usually between 3-5% per year.

On the eve of the pandemic, there were promising signs of a significant rise in new home construction, with new home starts exceeding 1.5 million (annualized) each month from December 2019 to February 2020. Those numbers came crashing down in March but builder confidence has come roaring back, and now October 2020 once again saw construction begin at an annualized pace above 1.5 million homes, suggesting (this is a 1 month sample) a robust pipeline of expanded housing supply in the near future but with the formation of close to 2 Million households per year will it still fall short?

Despite the fall in the rate of new household formation, the housing market has still seen significant gains in the number of households, and will soon see even more, largely because of the size of the maturing Millennial generation. Even at 2019’s low age-specific headship rates, the surge of Millennials moving from their low-headship 20s into higher-headship 30s will mean 6.4 million more households by 2025, an increase from 130.5 million to 137 million, using Census population projections.

Existing Home Sales, which measure closings on existing homes, were up 7% to an annual pace of 6.29M units. Sales are down 2.3% year over year. Single family sales were up 7.7%, and are down 3.1% year over year. Inventory was down about 1% from last month to 1.27M homes for sale. Inventory is down 13% year over year. The Median home price was reported at $352,800, which is up 13.3% year over year. First Time Home Buyers have accounted for 28% of sales, which is down from 29%. Cash buyers remained stable at 23%, but is up from 18% last year. Investors purchased 13% of homes, which was down from 15% the previous month.

Housing Starts declined 1.6% in September at an annualized pace of 1.55M homes. Year over year, starts are 7.4% higher than this time last year. Single Family Starts, which is the most important, is flat month over month at a 1.08M pace. All of the decline was in multi family – 2 to 4 units were up 20%, but 5 units+ saw a big decline. It’s a miracle to see single family starts at unchanged levels with the labor and supply chain issues. Permits, which are a good forward-looking indicator for Starts, declined 7.7% last month and are flat year over year. Single Family permits, however, were down 1% to the lowest level in 14 months. Because permits are a leading indicator for future single family starts, it signals that supply is going to remain tight into the future. While that makes it difficult to find a home, it should be supportive of home prices. Completions were down 4.6%, which shows how much of a backlog builders have to work through.

Your better bet may be to buy sooner than to pay more later at a higher interest rate as the availability of rental units is also declining and rental costs are rising as well.

Kevin Berju, Branch manager AFN. www.phillymortgageteam.com 215-681-3587

Article Written By: Kevin Berju, Branch Manager AFN, www.PhillyMortgageTeam.com

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Kevin Berju starts Philly Mortgage Team with over 25 years in the mortgage industry. Prior to working with residential and commercial mortgages, Kevin graduated with a business degree from Temple University, owned his own business, and worked as an agent for years in both commercial & residential Real Estate. With Kevin’s diverse knowledge of the real estate and mortgage industries, his clients are thoroughly guided throughout their home buying or refinance process. As a result of his knowledge, attention to detail, responsiveness to his clients, and exceptional work ethic, Kevin was awarded the Five Star Mortgage Professional recognition in Philadelphia Magazine for the past successive years as well as reaching the top 1% of all originators country wide since 2012 as designated by Mortgage Executive magazine.

As a mortgage professional for over 2 decades, Kevin is an invaluable resource for both first-time and experienced home buyers. With his accomplishment of the Certified Mortgage Planning Specialist designation, Kevin is placed in an elite group of the top 5% of mortgage professionals in the industry. Looking to Purchase or Refinance in Pennsylvania, New Jersey, or Florida? Kevin Berju is the Lender for You!

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