Most housing economists are predicting a stronger year for home sales this year, and a friendlier market for buyers with more choices.
But there remain significant hurdles to homeownership, especially for first-time buyers facing higher-than-expected mortgage rates and a shortage of affordable starter homes in many markets.
On Wednesday, Jessica Lautz, deputy chief economist for the National Association of Realtors, discussed with Scotsman Guide the national housing shortage, mortgage rates, the “lock-in” effect and other key issues facing housing this year.
There have been reports that homebuyers will have more choices this year, and we might even see a buyer’s market. Does NAR still say there’s a shortage of available homes nationwide?
There is. We are still seeing a shortage of homes in the housing market compared to the demand that is pent up. More inventory is coming into the market, but if we look at the level of inventory, we are still below February 2020, and I would say that’s when the housing market had a substantial increase in demand with lower interest rates.
Is there a rough estimate of how many homes might be needed?
We are short about 4 ½-5 ½ million homes, but it’s a hard measure given the unaffordability of the current housing stock.
And where is the shortage? What sort of price range are we talking about?
So, we don’t look at a price range, because that would vary by each individual housing market and even, honestly, down to a very local level. What I would say is the type of unit that we’re missing is for a first-time homebuyer or for a retiree who wants to downsize, or for a single homebuyer who does not have children and may want a smaller, more affordable housing unit.
Are there areas of the country where the shortage is worse than others? And if so, where?
We’ve seen the building of new properties in the South, but many of those new properties are quite large. And so, if we look at regions where there could be more home building activity, we also have to ask the question, does that type of property meet the needs of that population or is there a building mismatch?
Realtor.com has noted the months’ supply of homes for sale was increasing last year into buyer’s market territory. Do you agree with that assessment?
We certainly have seen more inventory come into the market, but I would say that in the winter months we always know that we have lows in housing inventory. People are really unwilling to move when there’s a lot of snow on the ground, when there’s winter weather, when kids are in school.
And so, we actually see a contraction in inventory in winter months. As we head into the spring, though, I would think that we could see more housing inventory.
What’s your assessment of how the year will go for sales?
We do have a forecast of an increase in sales units, sales volume, and that’s due to a number of encouraging things. Some of that is due to more units coming into the market, more availability of choice for homebuyers.
There’s plenty of housing demand from young adults who want to find a new place to live; and mortgage interest rates, though they are higher in recent weeks, have come down from 2023.
But interest rates are higher than expected. How’s that going to affect buyers who are already being squeezed by high home prices?
Well, certainly higher interest rates impact first-time homebuyers more than repeat buyers in the market. Repeat buyers who are currently homeowners, they have a lot of housing equity right now that they’re sitting on, so they may be able to make their next home purchase, if not with cash, with a large downpayment that could offset the higher interest rate that they would have on that mortgage.
The one thing that I would say, too, is that interest rates really have been in the mid-6s for a number of months. Knowing that mortgage interest rates are in that 6% range allows homebuyers some stability … freedom to know that this is where they’re going to be without wild swings.
Last question: Lots of economists are now talking about the lock-in effect, the fact that many existing homeowners have low-interest mortgages. What’s that doing?
They may be unable or unwilling to move from that low interest-rate mortgage. That being said, life changes happen, and equity is being earned by these homeowners. So, they’re actually in a pretty good spot if they want make that move.
Author
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Victor Whitman is a contributing writer for Scotsman Guide and a former editor of the publication’s commercial magazine.