We need a huge boost in housing supply, which will relieve the housing shortage and tame the current fast-rising home prices, writes Lawrence Yun, chief economist at the National Association of Realtors.
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The US housing market has been hit hard by the pandemic. The visible impact of the lockdown has been clear, with millions of Americans out of work and few doing any shopping, including major purchases like buying a home. There has just been too much uncertainty about the economy and the potential deadly consequences of the coronavirus.
In April, pending home sales reached their lowest mark in nearly two decades. As a result, we expect actual closing activity, which follows contract signings, will have reached a trough in May.
However, as more Americans get back to work, we are starting to see both buyers and sellers returning to the market, creating the beginnings of what we believe is a V-shaped recovery in the housing sector. Over the past several weeks, purchase activity has been 13% higher than it was during the same period a year ago. Listed homes are under contract within about 30 days, indicating a very swift market.
But not everyone who wants to buy a home will be able to participate in this recovery.
Realtors across the country are saying there are not enough homes for sale compared to the number of buyers in the marketplace. For first-time homebuyers, the market looks especially tough.
Pent-up housing demand has intensified for several years due to natural population growth. And the low interest rate environment further enlarged the pool of eligible home buyers.
On the supply side, for the past decade or so, homebuilders simply were not building a sufficient number of homes to match the rising housing demand. In my estimation, we were short by 5 to 6 million housing units. That’s why home prices have been increasing for so many years.
In the early weeks of the lockdown, the total listings of homes for sale fell significantly, as some listings were pulled off the market because homeowners did not want strangers coming into their homes and some would-be listings that typically show up in spring did not. The housing shortage worsened. That is why, even with buyers taking a pause, home prices continued to rise in March, April and May.
Related video: America’s housing crisis was already here. Coronavirus made it worse.
The homeownership rate is naturally higher for those with above median income compared to those with incomes that are below the median (78.8% vs. 51.8%) given their financial resources. Ownership rates are also higher among older households compared to younger ones (over 70% for those aged 45 and over compared to 61.5% for those 35 to 44 and 37.3% for those under 35 years old). But a stark contrast also…