In the aftermath of the pandemic, the US housing market is proving to be more challenging than ever. With historically high prices, increasing mortgage rates, and a significant inventory shortage, both home buyers and investors are finding it difficult to navigate this heated market.
The median price of existing homes has been on the rise for six consecutive months, peaking at $410,200 in June 2023, only 0.9% less than the record high set in June 2022, according to the National Association of Realtors (NAR). Despite the escalating prices, competition for homes remains fierce with multiple offer scenarios reported for 33% of properties on the market.
The intense competition can be traced back to historically low inventory levels, which have sunk 14% compared to last year. The total housing inventory at the end of June was 1.08 million units, resulting in an unsold inventory supply of only 3.1 months.
This market condition significantly impacts investors. Cash sales, which are often carried out by individual investors or second-home buyers, accounted for 26% of transactions in June, an increase from 25% in May 2023 and June 2022.
However, the housing crisis is becoming increasingly challenging for the middle class. According to the NAR and Realtor.com, the market is short of almost 320,000 home listings valued up to $256,000, which is considered affordable for middle-income buyers earning up to $75,000 per year. As a result, housing has become progressively unaffordable for many Americans, with middle-income buyers now able to afford less than a quarter of the listings on the market.
For investors, this ongoing housing crisis presents both opportunities and challenges. On one hand, the low supply and high demand dynamics may lead to high returns for those who are willing to invest in higher-priced properties or in markets with robust demand. On the other hand, the rising prices and interest rates may limit the pool of potential buyers, potentially impacting the liquidity of their investments. It might also deter current homeowners from selling their properties and buying new ones at higher interest rates, adding to the supply crunch.
Nadia Evangelou, NAR's senior economist and director of real estate research, suggests a two-fold solution: increase the overall supply of homes and boost the number of homes at price ranges that most people can afford.
As the market conditions continue to evolve, investors are advised to keep a close eye on the trends. In the meantime, focusing on enhancing credit scores, building savings for future down payments, and shopping around for the best mortgage rates may provide some relief and open up more investment opportunities.
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