There’s a reason buying a home has been such a challenge in recent years. The housing stock has plummeted since the pandemic began. This has created a classic low-supply, high-demand situation that has pushed up real estate prices.
And the worst? We could see a few more years of record-low housing stock.
Buyers might have a tough road ahead
Today’s housing market is particularly challenging for everyday buyers and real estate investors looking for income properties. Not only are house prices sky high, but mortgage rates have risen sharply since the beginning of the year. This has led to a massive decline in affordability.
Image source: Getty Images.
So far, rising mortgage rates don’t seem to deter buyers. And as long as the housing stock remains low, sellers could continue to get away with asking sky-high prices for their homes, pushing buyers to the limit.
On the one hand, one can expect house offers to pick up as sellers are able to weather some of the economic and pandemic concerns that have plagued them since early 2020. but Zilov doesn’t really expect that to happen any time soon.
In fact, the housing stock won’t reach pre-pandemic levels until 2024 at the earliest, according to Zillow’s latest survey of home price expectations. This puts buyers in a very difficult position.
Unless inventories recover, bidding wars could continue to dominate the market. And these often drive home prices to unreasonable levels.
In the last two years, US home values have increased by 32%. Meanwhile, total inventory has fallen from an average of 1.6 million units per month in 2019 to just over 1 million in 2021, according to Zillow’s estimates. And so far this year, inventories have not increased.
To be fair, the winter season is hardly the best time for real estate deals. But unless inventories rebound significantly in the spring — which they may not — buyers could end up grappling with record-high home prices for at least another year, if not more.
Waiting to buy might pay off
Over the past year, lower mortgage rates have encouraged homebuyers to continue despite higher home values. Borrowing isn’t nearly as affordable this year. As such, it could pay off for regular buyers and investors alike to exit the market, give it some time to cool, and then try again in 2023 or even 2024.
While there’s no guarantee it will take two years for property stocks to return to pre-pandemic levels, it’s a possibility buyers need to be prepared for. And that could mean adjusting plans and resetting expectations.
Home buyers today run the risk of not only overpaying, but also running into a difficult-to-refinance mortgage as property values begin to decline (which will happen sometime in the not too distant future). And investors risk ending up in a similar boat — either that, or tying up money in real estate and limiting their options elsewhere.
All in all, it’s just a really, really difficult time to buy. Therefore, investors in particular should look for other ways to build their real estate portfolio, e.g. B. by choosing REITs (Real Estate Investment Trusts) instead of physical real estate.