The growing supply-demand imbalance coupled with high construction costs will make for a troubling journey to normalize the housing market, a recent Bank of America Global Research report says.
These present home sales in 2015 have declined while demand remains high. ''Mortgage buying applications and existing home sales have been declining this year and we expect further slippage, the report stated. In contrast, we see up attracted housing sales and starts for new home selling but with speed bumps due to high cost.
The home prices have risen over the past year with the increase of 13%. 2021 has only produced an increase of 13%. The report describes the current price trend as cooling and predicts that price appreciation will continue next year.
After the pandemic stopped home sales and buying in early 2020 in the U.K. after the first hit country, the economy declined as a result. Now, almost a year after the pandemic, buyers are more concentrated as more people look to re-enter the real estate market.
The Pandemic created a big push in demand all at once, said Michelle Meyer, BofA global research head of US economics. There were these pandemic-related relocations: some of it was out of the surrounding towns into those areas, some of it was totally out of state or to new areas that seemed more attractive.
People have been moving to areas like Austin or Denver, Meyer says, because the economy is doing well there. Both Austin and Colorado ranked in April within the Top 3 cities with the strongest job market after the Wall Street Journal last article. All these factors have contributed to relocation and in turn, an increase in the demand for housing.
The BofA report found that high prices have fallen due to the high price of a car.
The percent of home buyers who say it's a good time to buy a house is at the lowest level it is in the Early 1980 s and primarily because the prices are so high, Meyer said. 'Tis less so, because of interest rates.
She referenced a U of Michigan Consumer Sentiment Survey that found that the percentage of people believing that it is time to buy has soared to a record-high 80%, while the percentage of people who believe it is a good time to sell has dropped to 46%, the lowest since 1982.
The prices are the main culprit in the lackluster consumer sentiment, the report concludes, and are an indication that a rebalancing of the market needs to take place.
Yet homebuilder sentiment remains below record highs given exceptionally low inventory, finds the report. The National Association of Home Builders Housing Index, a measure of sentiment about home builders, rose in November to a record high of 90, though it currently is a few points lower at 83.
This new finding comes in the midst of significant cost pressures on builders, with a rise in lumber and related products prices from the past year having increased '' over $34 K to the price of a new home, the report found. These cost increases are beginning to slow production of new homes.
The report ultimately finds more significant risks in the future of existing home sales. Looking ahead, we suspect that the risks are being hit for current home sales to fall - because of the combination of lower affordability and tight inventories, according to the report. 'Meanwhile, new home sales may grind higher as these supply challenges are driving demand towards new construction.
Ihsaan Fanusie is a writer from Yahoo Finance. Follow him on Twitter IFanusie.
BofA estimates that the cost of a new house has increased by $34,000 in the 2014 estimations :
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