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Continued Decline in Existing Home Sales Highlights Growing Supply Shortage
The US housing market is facing a continuing supply shortage, leading to a decline in existing home sales in June. According to data from the National Association of Realtors (NAR), sales of previously owned homes dropped 3.3% from the previous month, reaching an annual rate of 4.16 million units. Compared to June 2022, existing home sales are down 18.9%.
The chief economist at NAR, Lawrence Yun, stated that the main issue is the lack of available homes for sale. The number of homes on the market at the end of June was about 1.08 million, unchanged from the previous month and down 13.6% from one year ago. This limited inventory has led to increased consumer demand, with homes selling on average in just 18 days. Before the COVID-19 pandemic, homes typically stayed on the market for about a month.
At the current pace of sales, it would take approximately 3.1 months to exhaust the existing home inventory. Experts consider a pace of six to seven months as a healthy level. Nicole Bachaud, a senior economist at Zillow, explained that affordability constraints and mortgage rate lock are preventing existing homeowners from listing their homes. Additionally, the flow of listings coming onto the market has decreased significantly from pre-pandemic levels, further impacting sales.
The median price of an existing home sold in June was around $410,200, the second-highest price ever recorded since the NAR began tracking the data in 1999. Although it is down 0.9% from the all-time high of $413,800 recorded one year ago, prices varied across the country. Housing costs increased in the Northeast and Midwest but decreased in the South and the West.
Yun noted that while home sales have fallen, prices have remained firm in most parts of the country. Limited supply has resulted in multiple-offer situations, with one-third of homes selling above the list price in the latest month.
The Federal Reserve's aggressive interest-rate hike campaign has contributed to the cooling of the housing market, as mortgage rates soared above 7% for the first time in nearly two decades. However, even though rates have been slow to retreat, home prices are once again on the rise as buyers adjust to the new rates and compete for the limited supply. Currently, rates on the popular 30-year fixed mortgage are hovering around 6.96%, well above the pre-pandemic average of 3.9%.
The lack of available homes for sale is largely responsible for the current situation. Sellers who secured a low mortgage rate before the pandemic have been hesitant to sell, given that rates are still high. This scarcity of options has left eager buyers with limited choices.
A recent report from Realtor.com revealed that the number of available homes on the market in June was down more than 47% compared to the typical amount before the COVID-19 pandemic began in early 2020. This shortage of supply continues to put upward pressure on home prices and negatively impact the overall housing market.
Conclusion: Impact on Newly Formed Businesses
The ongoing supply shortage in the US housing market could have a significant impact on newly formed businesses, particularly those operating in the real estate or related industries. Here's a "hot take" on how this issue might affect new ventures:
1. Limited Opportunities for Real Estate Investors: With existing home sales declining and the scarcity of available homes for sale, real estate investors may find it challenging to identify suitable properties to purchase. This shortage of inventory could lead to increased competition and potentially drive up prices, making it difficult for newly formed LLCs to secure profitable investment opportunities.
2. Reduced Market Demand for Home Services: The low inventory of homes for sale may also impact businesses providing home-related services, such as home improvement, remodeling, or staging. With fewer transactions taking place, demand for these services could decrease, affecting the revenue potential of newly formed businesses in these industries.
3. Challenging Entry into the Real Estate Brokerage Market: The limited supply of homes for sale might pose challenges for new real estate brokerages trying to establish themselves in the market. With fewer properties available to list and sell, attracting clients and generating revenue could be more difficult for these newly formed firms.
4. Opportunities in the Rental Market: While the housing supply shortage primarily affects the sales market, it could create opportunities for newly formed businesses in the rental market. As potential buyers face difficulties purchasing homes, they may turn to renting, increasing demand for rental properties. This could benefit property management firms, rental agencies, and landlords.
In summary, the current supply shortage in the US housing market could pose obstacles for newly formed businesses in the real estate industry, particularly those focused on sales transactions and home-related services. However, there may also be opportunities to capitalize on the rental market as potential buyers seek alternative housing solutions. Understanding and adapting to the dynamics of this challenging market will be key for new businesses to thrive in this environment.
Original Article First Published at: https://www.foxbusiness.com/economy/existing-home-sales-fall-again-worsening-supply-shortage