Even Move-Up Buyers Face Fraught House Hunts

October 16, 2019

Low mortgage rates are drawing out more home buyers who want to take advantage of the decrease in borrowing costs, but they’re increasingly growing frustrated as the selection of properties narrows. An unseasonable surge in buyer demand has coincided with housing inventories moving even lower in recent months. Inventories dropped 2.5% annually in September, realtor.com®’s data shows.

The lower tier of the market—homes priced under $200,000—is seeing the greatest shortages, down 10% compared with a year ago. The supply of homes between $200,000 to $750,000, which comprise 60% of the housing market, saw essentially no growth in inventory in September. Economists are now forecasting a decline in the months ahead in that price range.

“If, or better yet, when inventory in this segment begins to take a downturn, the vast majority of home buyers are going to feel its effects as their options rapidly dwindle,” George Raitu, realtor.com®’s senior economist, told CNBC. “September inventory trends, especially in the mid-market, may be the canary in the coal mine that we could be headed for even lower levels of inventory in early 2020.”

As demand grows for homes and shortages remain, buyers should expect to see higher home prices.

Still, lower mortgage rates are getting more buyers looking. The 30-year fixed-rate mortgage averaged around 3.5% in September, well below its average of over 5% last November, Freddie Mac reports. New- and existing-home sales have increased as mortgage rates have fallen, signaling the activity of buyers.

But new-home construction won’t likely be able to pick up enough speed to offer home buyers greater choices at the price points they need. Only 10% of sales of newly built homes come in below $200,000, says Robert Dietz, chief economist at the National Association of Home Builders. Ten years ago, that percentage was 40% of new home sales. Dietz told CNBC that the overall new-housing market is undersupplied by about 1 million housing units.

“We’ve faced what has been called a perfect storm of supply-side challenges,” Dietz says. “There has been an ongoing labor shortage, we lack the necessary land and lots to build homes, we’ve had building material cost concerns, and then probably the most important factor has been higher regulatory costs since the Great Recession.”