Spring home buying season kicks off with tight inventory posing challenges for buyers
The strongest seller’s market ever is set to hold for the start of the spring home buying season, housing experts say. Home prices and sales have soared for nearly two years, and the number of properties on the market has plunged to a record low.
Of course, housing demand could be dampened by the punch of rising mortgage rates and a squeeze in affordability. But supply – namely its notable lack – is the most important economic driver of the housing market in 2022.
At the end of January, just 860,000 homes were for sale nationwide, a 1.6-month supply that the National Association of Realtors calls the lowest on record.
“We’ve never seen fewer homes for sale than we currently have,” says David Berson, chief economist at Nationwide Insurance.
The tight supply is disappointing news for buyers hoping 2022 will bring some relief to the strong seller’s market, which has been characterized by bidding wars and double-digit price increases.
“For now, the sellers are still in control,” says Nick Bailey, president and CEO of RE/MAX. “Buyers are absolutely in this sprint to get to the front of the line.”
Potential buyers – especially millennials – are on board
Despite the challenges facing buyers, a significant number of American adults say they will buy a home this year, according to a Bankrate survey.
In a survey of 2,449 adults in mid-February, Bankrate asked: “How likely, if any, are you looking to buy a home in 2022 (i.e. with cash and/or a mortgage)?
Overall, 20% of American adults are at least somewhat likely to buy a home in 2022. Young adults are more likely to buy this year, with 35% of millennials (ages 26-41) saying that ‘they are actively looking for. This compares to 15% of Generation X (ages 42-57) and just 7% of Baby Boomers (ages 58-76).
Millennials are now in their prime buying years. But compared to older generations, they have delayed home ownership.
“Millennials are no less interested in owning a home than their older siblings and parents,” Berson says. “But for various reasons, they postponed it.”
These reasons include a weak labor market during and after the Great Recession, as well as a glut of student loans. Millennials have also waited longer to marry and have children.
When it comes to purchasing plans, family status also matters. A third of parents with children under 18 are at least somewhat likely to buy a home this year, compared to 18% of non-parents.
Geographically, more Westerners (23%) and Southerners (22%) are at least somewhat likely to buy a home in 2022, compared to just 16% of those in the Northeast and Midwest.
The pandemic has upended normal shopping habits
In a typical year, hundreds of thousands of American homeowners spend the winter planning to market their homes. They hire listing agents, clean their homes, and strategize on staging and pricing. The seasonal pattern is often determined by the school year – families want to be out of one house and in another by the time classes start in August or September.
The coronavirus has blocked this rite of spring. At the start of 2020, the pandemic effectively canceled the spring sales season. And in 2021, the housing market was in a frenzy, a boom that changed the normal seasonal patterns organized around the school year.
The spring 2022 market could echo the spring of 2021 – and desperate buyers, realizing that sellers hold the cards, are getting a head start.
“Seasonality is over,” says RE/MAX’s Bailey. “I think the spring market has already started.”
Why are there so few houses for sale?
In most parts of the United States, buyers will continue to navigate extremely tight supplies.
“The inventory of homes on the market remains woefully depleted,” says Lawrence Yun, chief economist at the National Association of Realtors.
While homebuilders have tried to meet this demand, they face a number of headwinds. After overbuilding before the Great Recession, builders drastically cut spending. Now they find themselves without enough land to develop.
Labor shortages and supply chain issues also play a role – lumber, appliances, windows and garage doors have all been in short supply during the pandemic. Even if they could speed up, builders focused on more expensive homes. The most intense shortage is in the supply of homes priced below $500,000, Yun said.
For buyers, all of this means at least a few more months of upward pressure on home prices, according to housing economists.
“Spiking mortgage rates are likely to reduce demand for housing, primarily among first-time buyers and those on a budget,” says Selma Hepp, deputy chief economist at housing data firm CoreLogic. “Nevertheless, with demand remaining well beyond available inventory, pressure on home prices will remain strong, especially as potential buyers fear further mortgage rate hikes.”
How to Navigate This Spring’s Crazy Real Estate Market
Just to reiterate: salespeople call the shots. “It’s most definitely still an intense seller’s market,” said Kevin Parker, vice president of Navy Federal Credit Union.
If you’re shopping for a home, here’s how you can deal with tough conditions:
- Shop hard for a mortgage. Buyers may not have much bargaining power when it comes to bidding on homes, but you can shop aggressively for the best home loan. Getting multiple loan offers can save you thousands of dollars over the life of the loan.
- Get ready for a bidding war. It’s not easy to avoid multiple auction situations in today’s market, where buyers are paying tens of thousands of dollars above the list price just to get a home.
- Go into bidding with a plan. In the heat of the moment, you may be tempted to up your bid trying to win. Before you get into a bidding war, set a clear cap on how much you’re willing to bid for the property – and stick to it.
- Be careful when skipping inspections. To be competitive, many buyers have agreed to let sellers off the hook if a problem is discovered by a home inspector. “Every time you give up contingencies, you increase your potential exposure,” Parker says. If you choose this path, do not skip the inspection. You can waive the possibility of an inspection without waiving the inspection itself.
- Be prepared for the rating to be low. In a hot market, buyers are willing to pay more than an appraiser thinks a home is worth. This complicates the matter and jeopardizes the borrower’s mortgage financing. In the event of a “valuation gap”, the buyer may need to find additional money. “To salvage the transaction, buyers have two options: either use additional savings to fill the gap or renegotiate the purchase price with the seller,” says Glenn Brunker, president of Ally Home. First Internet Bank’s Kevin Quinn says loan officers document borrowers’ reserves with this in mind – buyers need to know ahead of time if they can find additional cash.
Bankrate.com commissioned YouGov Plc to conduct a survey of 2,449 adults. The fieldwork was conducted February 16-18, 2022. The survey was conducted online and meets rigorous quality standards. It used a non-probability sample using the two upstream quotas during collection, and then a downstream weighting system designed and proven to provide nationally representative results.