The shortage of supply in the US residential property market is due, to a large extent, to the dwindling used home stock. Most homeowners say they feel 'trapped' in their homes and cannot move because they either do not have the budget to buy or the new mortgage conditions are much more expensive than the instalments they are paying on their current home.
Many are deciding to postpone until the economic situation improves. "It has never been more difficult to find an affordable house to buy in the US," several experts point out. The number of homes on offer has halved compared to the pre-pandemic period.
After the impact of the COVID-19 lockdown, hundreds of Americans rushed to move home, taking advantage of historically low interest rates to change homes or refinance their mortgages. Nine out of every 10 US homeowners with mortgages, or some 46.1 million people (almost Spain's population), have a rate below 6%, according to a report by Redfin Corp.
The average mortgage interest rate was below 3% in 2021, while now it is close to 7%, more than doubling. A benefit in monthly costs that many homeowners are not willing to lose, but for others, it can become a dilemma: if the house has become too small or too big, divorce is on the cards, or the family is going to increase with the arrival of children.
Now, the transactional market is stagnating with the replacement rate tanking because homeowners are thinking twice before putting their homes on the market. "People forget that the vast majority of sellers are also trying to buy homes at the same time," says Danielle Hale, chief economist at Realtor.com, "When conditions are difficult for buyers, it can also slow down supply in the market."
High mortgage rates do not seem likely to ease in the short term, following the latest statements by US Federal Reserve officials, slowing the arrival of new stock on the market and maintaining a fall in prices from maximums that several analysts had expected to be more pronounced but shorter in time.
One solution would be to construct more new builds, making up for the lack of stock on the market. For now, sales of newly built homes have grown by more than 20% in the last year, according to data from the US Department of Commerce. The number of starts and completions has also grown, which increased by around 6% in May, according to the Department of Housing and Urban Development.
But even if builders rush to increase production, that alone cannot close the gap between supply and demand. The one group that has historically kept the market moving – homeowners wanting to sell – is still absent. According to Realtor.com, used housing supply fell by 26% year-on-year in June.
According to a Credit Karma survey, 67% of homeowners say they will sell in the next three years and would be willing to wait until mortgage rates fall.
Article seen in (Bloomberg)
Lots of US Homeowners Want to Move. They Just Have Nowhere to Go
