Published Date 5/4/2022
ONE REAL ESTATE ECONOMIST EXPLAINS WHY THINGS ARE SO TOUGH ON HOMEBUYERS RIGHT NOW
Sometimes you want to hear it from the experts, but most of the time, frustrated would-be buyers might just end up Googling a bunch of perplexing questions regarding today’s real estate market. Of course, no one has a crystal ball. But Redfin decided to ask its chief economist, Daryl Fairweather, to answer the 5 most searched questions about the housing market.
The first is — Is the housing market going to crash? Fairweather’s response is telling. Like other economists, she is not predicting doom and gloom. Yet. “I don’t think the housing market is going to crash,” she says. “At least not this year. What we have right now is a housing market where there is a ton of demand and very limited supply. Supply is more than 20% lower than it was last year, but there’s just as much demand.” She goes on to say that when you have more buyers than there are homes, the result is that the price of homes goes up and the competition for them only increases. “That’s why the housing market feels so unhinged right now, but it doesn’t mean the market is going to crash, because people still have plenty of equity in their homes,” she says. “And the true value of a home is actually going up because more people want homes than there are homes for sale.”
The next question has to do with timing as well as red flags to look for if and when the market begins to do a 180. “I can see the housing market getting out of hand in a couple of ways. If people start speculating on homes, if they start expecting that home prices will always go up and they start buying homes just to sell them, then that can be a real problem and lead to a housing bubble, which could lead to a crash,” she says. “We’re seeing an uptick in investor activity.” She says if investor activity begins to dramatically surge and people are just buying homes to speculate on them, she would consider it a warning sign.”
Another inquiry comes from those wondering why housing prices are so high right now. “Demand” is outpacing supply,” says Fairweater reiterates. On the supply side, the reason that supply is so low is because we just haven’t built enough homes in this country for everybody who wants them. Millennials are the biggest generation. “We’re moving out, we’re starting our own households. And unfortunately, we didn’t really build enough homes in the last decade.” She points out how there were fewer homes built in the 2010s than any decade going back to the 1960s.
Following up on another big question, Fairweather admits that price growth is not as high as it was back in 2020, when it was peaking. “That’s because mortgage rates are going up. When rates go up, they make borrowing to buy a home more expensive and that can cause demand to cool down a bit. We haven’t seen demand cool down enough for prices to start slowing down because there are still so many people out there who want a home and [there are] not enough homes for sale.”
The last question is about whether the market will improve any time soon. “If the Fed continues to raise interest rates, that could slow down demand because it makes buying a home more expensive, but that isn’t really making the housing market better,” she says. “It just means that there are fewer people who can afford to buy.” Again, it goes back to supply. “The only way to make the housing market better, meaning more affordable for everyone, is to build more… that really is the answer.”
Fairweather says if buyers are upset about how expensive housing has gotten, they might consider reaching out to their local politicians and demand more homes be built. “It could take time. It’s not going to be fixed overnight, but that is the only real solution to why the housing market is so unbearable for buyers right now.”
Redfin, TBWS
