It’s a hot real estate market – so why are home sales plummeting?

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Secondary home sales fell sharply in April, surprising economists who had expected a modest fall last month. Real estate experts say this is an indicator that a shortage of everything from lumber to kitchen appliances is reflected in an already hot market – good news for sellers, but a situation that threatens to make more buyers cheaper despite low mortgage rates. loans. remain near historic lows.

Sales of existing homes fell from 6.01 million to 5.85 million year on year, the National Association of Realtors said Friday. The consensus was in favor of a slight increase to 6.02 million.

The drop could be attributed to inventory shortages, said Nick Bailey, director of customer service at RE / MAX. It’s the perfect storm for home buyers as builders are grappling with widespread and unprecedented supply chain hurdles, while a growing population of millennials is pushing to move into larger homes to accommodate families.

Builders are short of lumber and copper for PVC pipes and kitchen appliances.

“This millennial population is driving this market,” Bailey said. “Many of them are turning to new construction, but due to labor and supply costs, builders are very careful about how quickly or how slowly they get things to market.” Lumber shortages have been well documented, but there are many other supply chain bottlenecks that plague home builders, from copper for wiring to PVC pipes – even for commonly taken for granted inputs like kitchen appliances.

This combination of factors means that the sharp rise in house prices in the past year will continue. According to the National Association of Realtors, the average selling price of an existing single-family home hit a record $ 334,500 in March.

“We have a serious housing shortage in America,” said Lawrence Yoon, chief economist for the trade group. The problem began even before the advent of Covid-19, he said, and has been greatly exacerbated by a sudden influx of buyers looking for more space in the early months of the pandemic, as well as the closure of construction sites, factories and sawmills.

“Supply chain issues have increased the time it takes to build a home by several weeks,” said John Burns, CEO of John Burns Real Estate Consulting. According to Burns, large developers raise the prices of goods needed for construction, and then pass those costs – and then some – to buyers who are unable to negotiate due to a lack of available supplies, while small builders often completely blocked, Burns said. …

“Suppliers need to take care of their biggest customers first,” he said. “The surge in demand is allowing builders to drive up prices and putting more pressure on the supply chain as demand for materials has skyrocketed.”

Experts predict that even after much of the American economy returns to normal, these consequences will have a long tail. Commerce Department data released earlier this week showed that the number of new homes being commissioned unexpectedly fell to 1.57 million year on year, up from expectations of around 1.7 million.

“We are seeing continued appreciation in most markets,” Bailey said. Too many buyers chasing too few properties are causing bidding wars, and in some areas, competition is so fierce that many homes are sold before they even hit the market, he said.

According to Zillow, nearly half of the people who sold homes in the last month accepted the offer within a week. “As millennials reach their peak age of home ownership, we expect housing demand to be very strong in the coming years,” said Chris Glynn, chief economist at Zillow.

While low interest rates contribute to continued appreciation, Glynn said even that may not always make mortgages a financial reality for buyers. “The problem that interest rates can’t solve is the only barrier to entry – upfront payments,” he said. “The rise in prices is definitely making it difficult to pay the down payment,” he said. Programs that allow buyers to invest less than the traditional 20 percent may help, but in some markets, he says, potential buyers are finding that this makes the cost of a monthly mortgage payment out of reach.

“Given the housing shortage and strong demand, there is no reason to assume that house prices will fall,” Yun said.

Yoon suggested that President Joe Biden’s infrastructure plan should include initiatives to attract buyers to homes.

“This is not a good result for the country,” Yun said. “We want to make sure that people who make financially responsible decisions need to have access to home ownership. We need to build more and more consistently for house prices to fall, ”he said.

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