Supply-Chain Woes Continue Slowing Home Construction

Building material prices, production bottlenecks, and labor shortages will continue to dampen the pace of construction and affect home prices this year, economists told a crowd at the 2022 International Builders’ Show in Orlando.

Building material costs have surged 21% compared to a year ago. Further, more than 300,000 job openings went unfilled in the construction industry in December 2021. The National Association of Home Builders estimates that the residential construction sector will need to add 740,000 workers a year to keep pace with the industry’s growth, retirements, and departures.

Compounding matters further, inflation and interest rates both are on the rise. Economists predict the 30-year fixed-rate mortgage will edge closer to 4% by the end of the year.

“Higher mortgage rates combined with rising construction costs and a lack of construction workers will increase affordability headwinds in the year ahead,” said Robert Dietz, chief economist of the National Association of Home Builders.

As such, NAHB is predicting modest single-family growth in 2022; single-family starts are expected to rise by 1% to 1.13 million units. Builders, however, predict starts to decrease by 1% in 2023 to a 1.12 million rate.

Still, “while single-family growth slows in 2022 and 2023 and returns to a long-term trend, production will still be 26% higher than in 2019,” Dietz said.

On the other hand, multifamily starts are expected to rise 6.3% compared to 2021. Construction activity on apartment and condo buildings is expected to accelerate due to low vacancies and rising rents. Source: “Housing Affordability Will Remain a Significant Challenge in 2022,” National Association of Home Builders (Feb. 8, 2022)

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Reprinted with permission

Buyers Purchasing Older Homes

Homes in America are getting older. With new construction activity having declined for more than two decades, buyers are purchasing older homes. In 2021, the typical home purchased was built in 1993—28 years ago—according to new research from the National Association of REALTORS®. For comparison, in 2011, the typical home purchased was also built in 1993, suggesting that year was when home construction started to slow and the gap began to widen. 

The younger the buyer, the older the home purchased. “Young buyers are more likely to feel the financial pressure of rising home prices and the lack of affordable inventory are more willing to buy a fixer-upper,” says Jessica Lautz, NAR’s vice president of demographics and behavioral insights.

Twenty-three percent of first-time home buyers said they compromised on the condition of the home they purchased. They may have felt the need to compromise to find the best location, size, and price for a home.

Eleven percent of young millennials—between the ages 22 and 30—purchased a previously owned home as a fixer-upper, compared to just 3% of buyers over the age of 66, Lautz says. Repeat buyers are more likely to purchase newer homes that need less TLC, using the home equity from their previous home to stretch their budgets.

Source: “With an Aging Housing Stock, What Are Buyers Purchasing?” National Association of REALTORS® Economists’ Outlook blog (Feb. 8, 2022)

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Reprinted with permission

Fewer Homeowners Are Selling

House hunters feeling that inventory continues to tighten are right, a new report shows. The number of homes for sale is down 28.4% compared to a year ago, according to realtor.com® data. Two years ago, before the COVID-19 pandemic, the number of active listings was 60% higher than today.

Winter months tend to be slower for the housing market as fewer sellers list homes. But this winter, inventories have fallen more than normal.

Economists downplay the effect of the pandemic, particularly the omicron variant, as the culprit. Instead, they say homeowners are hesitant to sell because they’re concerned about having to buy a new home themselves. That has prompted many to delay their selling plans, even as they watch the growing amount of equity in their properties.

More than one in four potential sellers recently surveyed said they were choosing not to sell in the near term because they couldn’t find a home they wanted in their price range, according to realtor.com®’s research.

“With housing costs rising, as home prices and mortgage rates both increase, affordability is more important than ever to households,” says Danielle Hale, realtor.com®’s chief economist. “Data suggests that this may be as true for sellers, many of whom will also purchase a new home, as it is for home buyers.”

Meanwhile, home buyers are finding fewer and fewer homes for sale at a time when they may be feeling in a rush. They want to take advantage of still-low mortgage rates before expected increases hit this spring.

Read more: Buyers May See ‘Whirlwind Year’ Source: “Is the Housing Market Stuck? Why Buyers Are in a Rush—and Sellers Just Won’t Budge,” realtor.com® (Feb. 8, 2022)

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Reprinted with permission

IRS Backtracks on Selfie Requirement

The Internal Revenue Service says it will no longer require facial recognition software to be used to verify the identities of taxpayers online.

In January, the IRS announced that it was transitioning away from having accounts use just a username and password at IRS.gov for managing personal tax accounts online. Instead, the IRS said that it planned to use the private identity verification company ID.me, requiring users to upload a picture of themselves, to log into their accounts.

But the move sparked widespread criticism, including from some lawmakers, over giving a third party access to sensitive information in a biometric database. Critics also said that it could prompt bias among those with limited internet access.

“The IRS takes taxpayer privacy and security seriously and we understand the concerns that have been raised,” Chuck Rettig, IRS commissioner, said in a statement. “Everyone should feel comfortable with how their personal information is secured, and we are quickly pursuing short-term options that do not involve facial recognition.”

The IRS has said it will use another online authentication system but says it will not require facial recognition. Taxpayers should file their returns or pay the taxes owed as they normally would this year, it said.

The agency has been seeking technology solutions to try to address a growing number of scammers who have been impersonating taxpayers to claim refunds or impersonating the IRS to dupe people out of information or money. Source: IRS.gov; “IRS Will End Use of Facial Recognition After Widespread Privacy Concerns,” The Verge (Feb. 7, 2022); and “IRS Says It Will Stop Using Facial Recognition After Controversy Over ID.me Verification,” Fast Company (Feb. 7, 2022)

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Reprinted with permission

Homes are selling even faster than they were at this time last year as buyers continue to compete in the housing market. Housing inventories are lower as well, down 28% from a year ago. In December 2021, the National Association of REALTORS® reported that existing homes for sale fell to an all-time low.

With fewer listings of homes last week, buyer interest again outpaced homes available, writes Danielle Hale, realtor.com®’s chief economist, in a weekly analysis posted at the site.

“With fewer homes for sale now than this time last year, homes are selling faster and successful buyers have to move quickly,” Hale writes.

Seventy-nine percent of homes sold in December 2021 were on the market for less than a month, according to the National Association of REALTORS®. Properties typically remained on the market for just 19 days in December.

As rents rise at a double-digit pace, renters are looking to homeownership for the safety net of a steady mortgage and hopes of long-term appreciation. Mortgage rates that remain under 4% are also an incentive.

However, the fear of rising rates has driven a “rush on new-home sales as buyers try to sign contracts to lock-in rates and beat further cost increases,” Hale says.

Hale says housing indicators point to additional sellers entering the market this spring, which buyers would welcome as they look for a bigger selection in the housing market. Surveys show that more homeowners are planning to sell over the next 12 months. With single-family home construction at a 1 million–plus pace, inventory is expected to improve in the coming months.

“Additional housing supply is what’s needed to help first-time home buyers and add momentum to the homeownership rate,” Hale says. Source: realtor.com®

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Mortgage Rates Hold at 3.55%

Borrowing costs held mostly steady this week, but how long will the reprieve last?

Mortgage rates continue to follow the trend of the 10-year Treasury yield and have stayed flat over the last three weeks.

As the economic recovery continues through the spring and summer, mortgage rates are expected to resume their upward trajectory, says Sam Khater, Freddie Mac’s chief economist.

But for now, “since mortgage rates are still near historic lows, many people are rushing to benefit from these rates,” Nadia Evangelou, National Association of REALTORS®’ senior economist and director of forecasting, writes on the association’s blog.

Freddie Mac reports the following national averages with mortgage rates for the week ending Feb. 3:

• 30-year fixed-rate mortgages: averaged 3.55%, with an average 0.8 point, unchanged from last week. Last year at this time, 30-year rates averaged 2.73%.
• 15-year fixed-rate mortgages: averaged 2.77%, with an average 0.7 point, dropping from last week’s 2.80% average. A year ago, 15-year rates averaged 2.21%.
• 5-year hybrid adjustable-rate mortgages: averaged 2.71%, with an average 0.3 point, rising slightly from last week’s 2.70% average. A year ago, 5-year ARMs averaged 2.78%.

Freddie Mac reports commitment rates along with average points to better reflect the total upfront costs of the mortgage. Source: Freddie Mac and “Instant Reaction: Mortgage Rates: February 3, 2022,” National Association of REALTORS® Economists’ Outlook blog

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Reprinted with permission

A new survey shows that real estate agents are more confident about the state of the market than many consumers. Seventy-seven percent of home buyers and sellers say they believe there’s a housing price bubble where they live, according to a Redfin consumer survey of 1,500 respondents who plan to buy or sell in the next year. 

On the other hand, less than half—44%—of real estate agents say they believe there’s a housing bubble in their market, with the rest feeling far more confident about the state of the market.

Over the last year, many leading housing economists have said that while housing prices are indeed rising quickly, this isn’t a housing bubble, bearing little resemblance to the booming market conditions that led to a financial crisis in the mid-2000s.

Housing bubbles occur when home prices reach unsustainable growth. They eventually burst when demand can no longer justify the rapidly rising home prices. Sharp price declines can result.

NAR Chief Economist: ‘This Isn’t a Bubble’

But this isn’t 2006. Housing inventories are low, credit remains tight, and lenders aren’t issuing risky loans as they did then.

“Home buyers and sellers are rightfully concerned about how fast prices are rising, especially those who remember the housing market crash during the Great Recession,” says Daryl Fairweather, Redfin’s chief economist. “What we’re going through right now is closer to a ripple in the water than a bubble. Mortgage rates are already going up, which will likely stabilize demand and reduce the risk of a bubble that could burst.”

Home prices are expected to slow in 2022. The National Association of REALTORS® predicts price growth to moderate to 3% to 5% in 2022, much lower than the nearly 16% annual growth existing-home sale prices posted in December 2021. Source: “Are We in a Housing Bubble? Homebuyers Say Yes, Redfin Experts Say No,” Redfin (Jan. 21, 2022)

©National Association of REALTORS®
Reprinted with permission