What’s Shaping Today’s Market

Part 3 of a 4 part series on the current housing market.

Over the last two weeks we’ve covered what a housing bubble is and what actually happened back in 2008. That’s all well and great but doesn’t answer your REAL question.

If this isn’t a bubble then what actually is happening right now?

When we look at the current market, we see a few big factors that are shaping the increase in demand that has led to a drastic increase in price.

In the 2000’s mortgage practices, an abundance of new builds, and a trend of people purchasing multiple properties dictated the market.

Now we’re seeing a growing millennial market, decreased housing starts, fantastic interest rates (with thoughtful lending), longer home retention, and a new way of people interacting with their spaces lead the charge.

Growing Millennial Market

Over the last few years, millennials have become the largest buying demographic in the United States.

This isn’t a particularly surprising statistic; millennials are well within the range we expect historically for first time home buyers to be.

Why this is shaping the market currently is because millennials are coming to the market in numbers that outpace the number of homes available. This happens to be coinciding with decreased housing starts (see below) which has led to an unbalanced market where we have more buyers than properties available to buy.

Economists tells us that a balanced real estate market has a 6-month supply of inventory (meaning that it would take 6 months for all of the homes currently on the market to sell based on the current pace of home sales).[1]

We are currently at a 3.6 month’s supply, meaning that all of the homes on the market would sell in just over 3 months.[2] This is a market with low inventory which means prices and demand are up.

Decreased Housing Starts

As discussed last week, new builds (or housing starts) have been substantially lower year over year than they were leading up to the 2008 bubble.

Since 2008, the United States is short 4 million properties being built compared to pre-crash rates.

When the bubble happened, a lot of smaller builders were forced to close and never re-opened. Many bigger developers saw humongous losses and new homes simply have not been created at the same rate since.

Additionally, lumber and other construction material prices are incredibly inflated at the moment which makes it difficult for builders to justify the risk of beginning new projects.

Interest Rates

Over the last 2 years, interest rates have been abnormally advantageous. Many homeowners saw their buying power (how much value they can get for their initial dollar) hit record highs, a factor that has enabled many previously unable-to-purchase individuals to compete for homes.  

In many ways, this is great. It brings more people to the market and opens the door for increased generational wealth. The flip side of this is that these rates aren’t just open to first time buyers, so individuals and corporations with money to invest are also entering the market and competing for those same properties.

Home Retention

Additionally, historically we have seen people stay in their homes for 4-5 years. This meant that properties were entering the market more regularly and inventory was increased.

Lately we’re seeing homeowners staying in their homes for 8-9 years at a time which means that there are fewer existing properties entering the market, bringing the total number of available properties down from expected totals.

New Interactions

One of the main factors that has contributed to the increase in home retention is that people are choosing to modify their current homes to meet their needs rather than buying new.

Renovated kitchens, workspace additions, and new pools are becoming incredibly common. Housing contractors and pool builders are booked for years out already.

As you can see, there’s no one reason that the market exists as it does, but all of these factors together do a good job of explaining what we’re seeing and why we’re confident that values are not going to “burst” like they did in the 2008 housing bubble.

Enjoyed these insights and looking forward to more?  

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Steven Ritz, Buyer Specialist - Call 321-277-8271 or email here

Linda Sitek, Listing Specialist - Call 407-963-6544 or email here 

Brought to you by Abode at Keller Williams Winter Park Realty

[1] https://www.findwell.com/real-estate-dictionary/definition/months-of-supply/

[2] https://fred.stlouisfed.org/series/MSACSR