September 2023 Market Update
As we near the end of 2023, low inventory and high interest rates still plague our market, creating what feels like a log jam. At the same time, prices have continued to hold steady and well above where they were pre-pandemic. Many people are thinking, “I’ll wait for prices to come down.” We want to use this market update to explain why we believe that is unlikely.
Our market still has a major imbalance of supply (number of homes for sale) and demand (number of buyers in the market). The absorption rate (or the amount of time it would take to sell all current listings) is 1.6 months, which is a sellers market. To get to what we historically consider a “balanced” market, we would need at least 5 months of inventory. The scale would not tip to a buyer’s market until we get more than 7 months of inventory. As of July, our market still needs about 4,600 new listings to get to a balanced market. As of this writing, there are only 2,585 active listings. Moving forward, it will be a challenge to get to a balanced market for three main reasons: reluctance on the part of homeowners to sell, lack of distressed inventory, and new construction not keeping up.
The Golden Handcuffs
Current owners are sitting on rates in the 2%-4% range and don’t need to move badly enough to make the rate difference worth it, at least not yet. These homeowners are handcuffed to their current low rates. 60% of all households hold a mortgage. Why give up your low rate for a 7% rate in a market where home prices have appreciated at least 20%? Especially when there is a lack of inventory and so few options to entice them to move.
Distressed Inventory Isn’t Riding to the Rescue
Distressed inventory (think foreclosures and short sales) are basically non-existent in the market. June delinquency rates were the third lowest level on record. Why? We are at record employment, record income, and record home equity. Without distressed inventory, we have another big hole to fill in our inventory.
New Construction Has Not Met Generational Demand
At the same time that the biggest generation, the millennials, were aging into homeownership (years 2010-2019), builders built the fewest new homes that they had in decades. From 2000-2010, 12.6 million homes were built nationwide, but from 2010-2019, that was cut in half to 6.5 million. Coming out of the financial crisis, builders were hesitant, leaving new construction inventory 6 million homes short in 2019 when millennials entered the market.
