A Red Hot Market?

A Red Hot Market?

Update: 2020-07-23
Share

Description

On today’s show we’re taking a look at what’s happening in the housing market and make sense out of some pretty confusing data. Last week we reported that lumber prices have increased to record levels, driven by outdoor construction projects at restaurants, the low inventory in homes for sale, and numerous home improvement projects are driving demand for building materials.


On a recent project that I’m building, I’m receiving quotes of 5-6 weeks delivery for wood siding that normally should be a two week delivery item.


Construction trades for large projects in my market are booked for the next 18 months. We just had a builder in Utah decline a very attractive land purchase that had been previously committed. When that happens, it’s usually because they’re worried about making a financial commitment to building houses. In this case, they declined because they’re so busy with existing construction jobs that they don’t have the capacity to even start those jobs in the foreseeable future.


The headlines read that housing sales volumes for existing houses jumped 20.7% in the past month.


Driving sales are apartment renters seeking more space, young families moving to the suburbs, and wealthy city dwellers looking for second homes, brokers and economists say. At the same time, the supply of houses for sale remains low, with the pandemic making potential sellers cautious about letting people tour their homes. The demand for houses is there.


To put this in perspective, home sales are still down 11% compared with this time last year, which was a slow year by many measures. So arguably the market has the ability to support a higher level of activity without being considered overheated.


Home sales had been in a two-year rut heading into 2020, weighed down by perennially tight supply and historically high home prices. Even solid U.S. economic growth and low unemployment couldn’t get sales moving back in 2019. That seems like a lifetime ago.


Homes typically go under contract a month or two before the sale closes, so the June sales data largely reflect purchase decisions made in April or May when we were still in a stricter lockdown environment.


Some agents and brokers I’ve spoken with are optimistic that the usual spring demand has been pushed to the summer, and that momentum is building. The spring is normally the busiest season for home sales, as buyers with children want to move into new homes before the school year starts.


My take it that the market is being constrained on the supply side. People are not moving in the same numbers that we’ve seen in historical years. That’s reduced the supply of houses coming on the market. We often see this happen when prices rise. People want to move but don’t because they can’t find anywhere to move to. They bought their house a decade ago at a good price, maybe $150,000 or $200,000. Their home has increased in value and now would command a sale price of, say $500,000. But the seller is still living in a house that they paid $200,000 for. If they buy something new, they’re looking at prices starting at $500,000. Yes, they have a lot more equity to work with. But they often don’t see the purpose behind getting a larger mortgage and buying a house with a larger price tag. They’ll move because they’re forced to move for employment or a life event, but not for a change of scenery.


I’m currently in negotiation with a home owner whose name is Andy for a property that’s on the edge of a larger development site. Andy and his wife bought their house for $350,000. Prices in the neighborhood have skyrocketed to more than $1.2M. They don't want to pay that much for a new house.  So they’re deciding not to sell and stay where they are. That’s another house that will not go on the market this year.

Comments 
Download from Google Play
Download from App Store
00:00
00:00
x

0.5x

0.8x

1.0x

1.25x

1.5x

2.0x

3.0x

Sleep Timer

Off

End of Episode

5 Minutes

10 Minutes

15 Minutes

30 Minutes

45 Minutes

60 Minutes

120 Minutes

A Red Hot Market?

A Red Hot Market?

Victor Menasce