While the rise in prices is expected to slow down in the US house market next year affordability is going to be a major issue.
During the pandemic, the housing market has actually done well. There have been more purchases than thought early on and the market has outperformed the economy at large. However, that might be coming to an end. Prices are expected to slow down. That won’t make things more affordable, though.
According to a panel of Reuters property analysts, affordability is going to be a major issue. Low-interest rates and demand for at-home office space led to prices raising almost uncontrollably this year.
One expert with Wells Fargo said, “Overall housing demand remains strong, but there have been quite a few developments that have raised some red flags about the overall health of the housing market. …We look for sales and new home construction to moderate in 2023, as the bulk of pent-up demand is likely to have been met by then. Price appreciation is also expected to moderate.”
The market is comprised of 90% existing home sales. That means only 10% are new builds. Now, there is a lack of new supply. That has caused buyers to be pushed out of the market and now inventory levels are just one-third of where they should be. Experts said overwhelmingly that the two issues are supply constraints and higher interest rates.
‘All About Supply’ Analyst Says of US House Market
For one analyst at the National Association of Realtors this comes down to supply plain and simple.
“It’s all about supply. Reduction in supply of new home construction will lead to home prices rising above people’s income growth and lead to widening wealth inequality,” Lawrence Yun explained.
It doesn’t stop there. A majority of the analysts that were questioned pointed out that housing affordability is going to be getting worse for the next two to three years.
“Affordability is becoming a very serious concern. Many people are going to get priced out of purchasing a home, and more will be forced to rent,” said Brand Hunter of Hunter Housing Economics.
The US house market doesn’t look to be easing up for millennials any time soon. Many are already turning to other options as Hunter went on to explain further.
“A lot of millennials are already turning to renting detached single-family homes. They are having kids now, so they need that house in the suburbs with a yard,” he explains. “Parks nearby, other kids in the neighborhood, and good suburban schools.”
Right now the US house market doesn’t look like a great place to get involved. With these insights, it seems that young folks planning their future might have to look elsewhere. Homeownership is only going to be harder to achieve as affordability and income inequality get worse.