Is there room for optimism on the US housing supply front?

Overall picture tends to vary depending on the market

Is there room for optimism on the US housing supply front?

A supply shortage continues to grip plenty of major housing markets across the US – a factor that’s contributing to climbing house prices even as sales activity cools.

Take the Washington Metropolitan Area. The number of homes sold in the region slid by 13.8% on a year-over-year basis in May, but the median number of days on the market dropped and the average sale price jumped 3.3% to $697,450 that month.

While homes in the region are largely changing hands for in and around the listed price, or slightly above, there’s still plenty of competition at play in its housing and mortgage markets.

The first six months of 2024 have been “definitely better than last year” and “a very good start”, according to Kristi Hardy (pictured top), executive vice president, area manager and senior loan officer at Atlantic Coast Mortgage in Virginia.

She told Mortgage Professional America that lack of inventory remained the single biggest issue in the DC metro’s housing market, with multiple offers on properties a regular occurrence as a result.

Still, there’s been some reason for optimism with a recent uptick in supply – even though many homeowners are choosing to remain in place and not make a move because of the so-called “lock-in” effect, preferring to keep the low rates they secured during the COVID-19 pandemic than move and take out a new mortgage at a higher rate.

“That’s the reason for the inventory shortage,” Hardy said. “But we do have a lot of demand. There’s a lot of first-time homebuyers out there who really want to get houses, but it’s very challenging. They’re getting outbid by cash. There’s definitely a lot of cash offers.”

Hardy said her team has been able to help borrowers compete with cash bids by pre-underwriting files and analyzing documents before writing an approval letter – allowing them to offer eight-day closings.

“That way, they can make a strong offer,” she said. “We pretty much have to waive financing and appraisal contingencies in this market as well.”

Where is the supply shortage most acute in the US?

Last year, Bank of America revealed the cities with the most significant housing shortages across the US, showing that San Antonio, Dallas, and Orlando topped the charts in the second quarter for the most constrained housing supply.

That contrasted sharply with St Louis, Detroit and Miami, the three cities across the country whose housing stock was highest relative to their population.

Cities with lower housing supply are already witnessing a trend toward higher construction, according to BofA, although it also cautioned that a strong housing need in the growing parts of the country will prevail “if the current population dynamics are maintained.”

In May this year, the National Association of Realtors (NAR) said prices had increased in 205 out of 221 metro areas throughout the US, thanks in large part to a pronounced lack of housing supply.

Thirty percent (30%) of those saw prices increase by double digits even as mortgage rates hit their highest level in decades. “In the current market, rising prices are the direct result of insufficient housing supply not meeting the full demand,” said the association’s chief economist Lawrence Yun.

Meanwhile, a recent Fannie Mae survey showed that a swing in the sentiment of older Americans towards staying in their homes indefinitely suggested inventory hitting the market could be limited as a result.

Among the older homeowner cohort, 56% have no intention of selling their property, Fannie Mae said, compared with just 17% who have already sold or are planning to sell in the future.

How are homebuilders surveying the current landscape?

Still-high borrowing costs and an uncertain economic outlook have seen homebuilder optimism fluctuate notably in recent months. While it jumped at the beginning of the year with the expectation of lower mortgage rates down the line, the National Association of Home Builders/Wells Fargo’s housing market index showed builder sentiment flatlined in April.

That showed potential for demand growth across the country was present – but NAHB’s chief economist Robert Dietz said some buyers appeared to be holding off on making an offer “until they can better gauge where interest rates are headed.”

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