The National Association of Realtors reports pending contracts to buy homes posted a solid gain in September, despite softer sales of existing homes during the month.
Along with the increase in signed contracts, data gleaned from Realtor lockboxes showed plenty of foot traffic at open houses and individual showings. With lower mortgage rates and increasing buying power from a booming jobs market, demand has exploded.
But while the economy features steady employment and wage increases, the reality of low inventory in the entry-level home market sends many shoppers’ high hopes plummeting back to earth.
In the existing home market, many current entry-level homeowners are reticent to make a move to the next tier. Same goes for new homes. While builders are building more, it’s mostly in the move-up market.
The number of available homes for sale has waned in general, down more than 3% from September of 2018.
Price points and geographies are mixed. The median price for a home was 309,900 as of August, still up 4.9% from August 2018, but lower than July’s median. Higher priced homes, particularly in high-tax states, are sitting longer, while those selling below $500,000 are moving quicker - especially in the South and West.
Lawrence Yun, NAR's chief economist, says the numbers would be better if more affordable options were available.
“We need more competition in the home building market” Yun said. “Going forward, interest rates will surely not decline in a sizable way, so the changes in the median price will be the key to housing affordability."
President Donald Trump's Administration believes affordability can be increased by reducing regulatory burdens on builders. The White House announced its Council on Eliminating Regulatory Barriers to Affordable Housing in early 2019. noting more than 25% of the cost of a new home is the direct result of federal, state, and local regulations.
Any efforts to improve housing affordability and accessibility must be led by state and local governments, according to NAR.
Housing advocates agree it’s going to take a larger percentage of lower-priced homes to keep the market humming, and have suggested a number of solutions to address the shortage.
Outside of more traditional single-family development, converting old shopping malls and vacant office space into residential condos, permitting more accessory dwelling units and utilizing modular factory constructed homes could help meet the rising demand.