For some buyers, purchasing a home independently may be out of reach. Co-buying a home is an alternative approach to homeownership where two or more individuals purchase the property together and take on a joint mortgage. Get to know the benefits and drawbacks of co-buying a home before deciding whether it’s right for you.
How Does Co-Buying Work?
Just like a traditional home purchase, lenders use the buyers’ debt-to-income ratios and credit scores to determine their mortgage eligibility and formulate the terms of their loan. The lender will use the lowest median credit score to determine whether the co-buyers qualify. Before you purchase with a co-buyer, work with a real estate attorney to flesh out the details of the agreement including the distribution of shares, the responsibility of each party for the down payment and subsequent mortgage payments, and the home’s title. There are two main options for taking title to a home with a co-buyer.
Tenancy in Common (TIC)
When co-buyers hold a title as tenants in common, shares of the property can be divided equally or unequally. You and a co-buyer can decide to split ownership to reflect the amount invested. However, even if these amounts are unequal, no one individual may claim sole ownership of the property. If a co-buyer dies, their ownership passes along to their designated heir. With Tenancy in Common, a co-owner may sell their shares of the property at any time, without the need for approval from other co-owners.
Joint Tenancy
Joint Tenancy—or Joint Tenancy with Right of Survivorship (JTWROS)—requires that all co-buyers hold an equal interest in the property and that they all come into ownership through the same title at the same time. If one co-owner dies, ownership passes to the other co-owner—this is known as Right of Survivorship. Unlike Tenancy in Common, co-owners must receive approval before selling any property shares.
Pros and Cons of Co-Buying
Pros of Co-Buying
For those who don’t have the buying power to purchase a home on their own, co-buying presents an opportunity to combine assets and enter the market. Since lenders will be factoring in both of your incomes, you and your co-buyer will increase your chances of being approved for a mortgage and securing a low interest rate. Both of you will build equity over time as you pay back your joint mortgage. Even after the down payment and mortgage payments, there are a handful of costs that come with being a homeowner. Co-buying allows you to split these costs, saving money on bills, utilities, maintenance costs, and the like.
Cons of Co-Buying
Co-buying a home means you are relinquishing some control over the homeownership costs. At the end of the day, you can’t control your co-buyer’s finances. If a sudden life change leaves them financially unstable, the burden will fall on your shoulders, and you’ll have to make up the difference. Similarly, your credit score could take a hit if your co-buyer is unable to make their mortgage payments, even if you’ve consistently made yours.
Before entering a co-buying agreement, it’s important that you and your co-buyer are on the same page about the terms of ownership and your expectations as joint homeowners. Working closely together will help maintain the health of your finances, and most importantly, your relationship.
Despite low seasonal inventory, the King County real estate market shows some life, and buyers remain willing to compete for plum properties. A slight decrease in interest rates could mean welcome positivity in the new year. Find our full market recap here.
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EAST WOODINVILLE 17530 214th Ave NE, Woodinville 4 Beds / 3.25 Bath / 4,150 SF
This video shows Windermere Chief Economist Matthew Gardner’s Top 10 Predictions for 2024. Each month, he analyzes the most up-to-date U.S. housing data to keep you well-informed about what’s going on in the real estate market. See more market insights on our blog here.
Matthew Gardner’s Top 10 Predictions for 2024
1. Still no housing bubble
This was number one on my list last year and, so far, my forecast was spot on. The reason why I’m calling it out again is because the market performed better in 2023 than I expected. Continued price growth, combined with significantly higher mortgage rates, might suggest to some that the market will implode in 2024, but I find this implausible.
2. Mortgage rates will drop, but not quickly
The U.S. economy has been remarkably resilient, which has led the Federal Reserve to indicate that they will keep mortgage rates higher for longer to tame inflation. But data shows inflation and the broader economy are starting to slow, which should allow mortgage rates to ease in 2024. That said, I think rates will only fall to around 6% by the end of the year.
3. Listing activity will rise modestly
Although I expect a modest increase in listing activity in 2024, many homeowners will be hesitant to sell and lose their current mortgage rate. The latest data shows 80% of mortgaged homeowners in the U.S. have rates at or below 5%. Although they may not be inclined to sell right now, when rates fall to within 1.5% of their current rate, some will be motivated to move.
4.Home prices will rise, but not much
While many forecasters said home prices would fall in 2023, that was not the case, as the lack of inventory propped up home values. Given that it’s unlikely that there will be a significant increase in the number of homes for sale, I don’t expect prices to drop in 2024. However, growth will be a very modest 1%, which is the lowest pace seen for many years, but growth all the same.
5. Home values in markets that crashed will recover
During the pandemic there were a number of more affordable markets across the country that experienced significant price increases, followed by price declines post-pandemic. I expected home prices in those areas to take longer to recover than the rest of the nation, but I’m surprised by how quickly they have started to grow, with most markets having either matched their historic highs or getting close to it – even in the face of very high borrowing costs. In 2024, I expect prices to match or exceed their 2022 highs in the vast majority of metro areas across the country.
6. New construction will gain market share
Although new construction remains tepid, builders are benefiting from the lack of supply in the resale market and are taking a greater share of listings. While this might sound like a positive for builders, it’s coming at a cost through lower list prices and increased incentives such as mortgage rate buy downs. Although material costs have softened, it will remain very hard for builders to deliver enough housing to meet the demand.
7. Housing affordability will get worse
With home prices continuing to rise and the pace of borrowing costs far exceeding income growth, affordability will likely erode further in 2024. For affordability to improve, it would require either a significant drop in home values, a significant drop in mortgage rates, a significant increase in household incomes, or some combination of the three. But I’m afraid this is very unlikely. First-time home buyers will be the hardest hit by this continued lack of affordable housing.
8. Government needs to continue taking housing seriously
The government has started to take housing and affordability more seriously, with several states already having adopted new land use policies aimed at releasing developable land. In 2024, I hope cities and counties will continue to ease their restrictive land use policies. I also hope they’ll continue to streamline the permitting process and reduce the fees that are charged to builders, as these costs are passed directly onto the home buyer, which further impacts affordability.
9. Foreclosure activity won’t impact the market
Many expected that the end of forbearance would bring a veritable tsunami of homes to market, but that didn’t happen. At its peak, almost 1-in-10 homes in America were in the program, but that has fallen to below 1%. That said, foreclosure starts have picked up, but still remain well below pre-pandemic levels. Look for delinquency levels to continue rising in 2024, but they will only be returning to the long-term average and are not a cause for concern.
10. Sales will rise but remain the lowest in 15 years
2023 will likely be remembered as the year when home sales were the lowest since the housing bubble burst in 2008. I expect the number of homes for sale to improve modestly in 2024 which, combined with mortgage rates trending lower, should result in about 4.4 million home sales. Ultimately though, demand exceeding supply will mean that sellers will still have the upper hand.
About Matthew Gardner
As Chief Economist for Windermere Real Estate, Matthew Gardner is responsible for analyzing and interpreting economic data and its impact on the real estate market on both a local and national level. Matthew has over 30 years of professional experience both in the U.S. and U.K.
In addition to his day-to-day responsibilities, Matthew sits on the Washington State Governors Council of Economic Advisors; chairs the Board of Trustees at the Washington Center for Real Estate Research at the University of Washington; and is an Advisory Board Member at the Runstad Center for Real Estate Studies at the University of Washington where he also lectures in real estate economics.
Think of all the ways you use water at home. Whether it’s meal preparation, laundry, or doing the dishes, we use a lot of H2O. In fact, the average U.S. household uses more than 300 gallons of water per day, with a majority of the water usage coming from three primary sources: the toilet, the shower, and the faucet. But there’s good news! Adopting more sustainable practices at home can cut down on wasted water and can save you money on your utility bills. Let’s take a look at some simple ways to use water more efficiently at home.
5 Ways to Save and Reuse Water at Home
1. Reuse Drinking Water
Dumping half a water bottle down the sink may not seem like a significant waste, but over time, discarding extra drinking water adds up. Use water from bottles and glasses to water plants or rinse a plate with it and give the kitchen faucet a rest. Water purifiers can help cut down on the amount of bottled water you purchase and ensure that you have a healthy water source available at all times.
2. Water Plants with Leftover Water
It takes a lot of water to get your pasta just right, or to wash your fruits and vegetables enough so they taste as fresh as possible. Can all this water go somewhere? Fortunately, yes! Reuse that pot full of pasta water to quench your plants in the garden. Collect the water used to wash your produce and shower your house plants with it. Instead of just pouring excess water down the drain and letting it go to waste, little methods like these give it a purpose.
3. Use Barrels to Collect Rainwater
Check local regulations before setting up a rain barrel to collect runoff from your gutters. But once you have the green light, you’ll be surprised at how quickly your rain barrels will fill up, especially if you live in a rainy climate. Remember that water can get very heavy very quickly. It’s important to support your rain barrel with a solid foundation, using patio pavers, plywood, or cinder blocks to prop it up and make it easy to access the spout. And don’t forget to empty it before the freezing temperatures arrive.
4. Energy Star Appliances
Appliances are the true workhorses in a home, making our lives easier with how efficiently they tackle some of the most common household chores. However, some appliances are more efficient than others. Energy Star products are more efficient than other home appliances and are also held to a higher standard of efficiency by the U.S. Environmental Protection Agency (EPA). Next time you’re shopping for home appliances, look for the Energy Star badge on certified devices. These special products will help you save water with every cycle.
5. Garden Irrigation
Water is the lifeblood of a healthy, thriving garden, but there are ways to use water more efficiently in your garden beds. It starts with the plants you choose for your garden. Plants that are naturally acclimated to your local climate with thrive more easily. Group plants together based on the amount of water they need, so you don’t waste water running from one end of your garden and back with the hose running. Healthy soil is key to proper plant hydration, so it’s worth your energy as a gardener to focus on making your soil as rich and fertile as possible.
There is perhaps no other home décor style as comforting as traditional interior design. Rooted in the masterfully crafted Chippendale and Thomas Sheraton furniture designs and classic Queen Anne colors, traditional décor is one vintage style that stood the test of time. Here are five distinct features of traditional interior design.
5 Features of Traditional Interior Design
1. Dark Wood Finishes
Part of the reason for traditional design’s timeless appeal is its use of woodworking. With woodwork as a foundation, this design style feels classic but not dated. The dark, bold colors resemble the Victorian style, but traditional interiors are simpler and less ornate. The dark tones of the wood create a foundation for a more colorful decorative palette.
2. Traditional Design Color Palette
Traditional design can handle a heavier color palette while still providing comfort. The darker wood tones allow for darker color to be used elsewhere throughout a space, such as dark window coverings. Floral, plain colors, and muted plaids are all common color schemes. Walls are often covered with patterned wallpaper, floral designs, or damask. In terms of designs, traditional interiors pair well with geometrics and small, striking yet understated patterns.
3. Hardwood Flooring
This design style is classic from the floor to the ceiling. You won’t find laminate or tile flooring in the common areas of a home that adheres to the principles of traditional interior design. Complimenting the surrounding woodwork, homes designed in this style have solid hardwood flooring.
4. Traditional Decorations
The decorations used in traditional design help to reinforce its unique, classic-yet-comfortable ambiance. Table lamps and vases are typical of a traditional interior, often displayed in pairs to create symmetry. Though these accessories are bold, they are never too ornate or over-the-top enough to dominate the room.
5. Design Philosophy
Traditional design is calm and orderly. Whereas a more eclectic interior design style may offer more surprises throughout its spaces, a traditional interior is more predictable. Even the textiles used are subtle, with typical materials ranging from cotton and fur to velvet and silk.
The following analysis of select counties of the Western Washington real estate market is provided by Windermere Real Estate Chief Economist Matthew Gardner. We hope that this information may assist you with making better-informed real estate decisions. For further information about the housing market in your area, please don’t hesitate to contact your Windermere Real Estate agent.
Regional Economic Overview
The pace of job growth continues to slow in Western Washington, as the region added only 21,907 new positions over the past 12 months. This represented a growth rate of 1.4%, which was the lowest pace of new jobs added since the pandemic ended.
The regional unemployment rate in August was 5.8%, which was marginally below the 6% rate we saw in the same quarter in 2022. A few smaller counties lost jobs over the past 12 months while King County’s employment levels rose a meager .4%, mainly due to job losses in the technology sector. I’ve said before that I’m not convinced that the U.S. is going to enter a recession; I still stand by that theory. Slowing job growth does not necessarily need to be a precursor to a recession, but I expect that we will see lackluster growth until next spring at the earliest.
Western Washington Home Sales
❱ In the third quarter of 2023, 14,970 homes sold. This was down 22% from the third quarter of 2022 and 1% lower than in the second quarter of this year.
❱ Sales fell even as the average number of homes for sale increased 29.5% from the second quarter. This is clearly a sign that significantly higher mortgage rates are having an impact on the market.
❱ Sales fell in all counties except San Juan compared to the third quarter of 2022. They were up in 9 of the 14 counties covered in this report compared to the second quarter of 2023. San Juan, Mason, Grays Harbor, and Whatcom counties saw significant increases.
❱ Pending sales fell 6% compared to the second quarter of this year, suggesting that closings in the upcoming quarter may be lackluster unless mortgage rates fall, which I think is highly unlikely.
Western Washington Home Prices
❱ Prices rose 2.8% compared to the third quarter of 2022 and were .6% higher than in the second quarter of this year. The average home sale price was $776,205.
❱ Compared to the second quarter of this year, sale prices were higher in all counties except Grays Harbor (-.5%), Kitsap (-1.5%), Clallam (-1.6%), Whatcom (-2.6%), and Skagit (-3%).
❱ Compared to the prior year, the pace of price growth slowed in the third quarter. This wasn’t too surprising given that the market was coming off record high
prices in the summer of 2022. But what was surprising was that prices rose over the previous quarter despite the fact that mortgage rates were above 7% for almost the entire quarter.
❱ I don’t expect prices to move far from current levels in the coming months, and they likely won’t rise again until mortgage rates start to fall. When prices do rise, I anticipate that the pace of growth will be far more modest than we have become accustomed to.
Mortgage Rates
Mortgage rates continued trending higher in the third quarter of 2023 and are now at levels we have not seen since the fall of 2000. Mortgage rates are tied to the interest rate (yield) on 10-year treasuries, and they move in the opposite direction of the economy. Unfortunately for mortgage rates, the economy remains relatively buoyant, and though inflation is down significantly from its high, it is still elevated. These major factors and many minor ones are pushing Treasury yields higher, which is pushing mortgage rates up. Given the current position of the Federal Reserve, which intends to keep rates “higher for longer,” it is unlikely that home buyers will get much reprieve when it comes to borrowing costs any time soon.
With such a persistently positive economy, I have had to revise my forecast yet again. I now believe rates will hold at current levels before starting to trend down in the spring of next year.
Western Washington Days on Market
❱ It took an average of 32 days for homes to sell in the third quarter of 2023. This was 8 more days than in the same quarter of 2022, but 3 fewer days compared to the second quarter of this year.
❱ Snohomish and King counties were the tightest markets in Western Washington, with homes taking an average of only 19 days to find a buyer. Homes for sale in San Juan County took the longest time to find a buyer (57 days).
❱ All counties except Snohomish saw average days on market rise from the same period in 2022. Market time fell in 9 of the 14 counties compared to the prior quarter.
❱ The greatest fall in market time compared to the second quarter was in San Juan County, where market time fell 23 days.
Conclusions
This speedometer reflects the state of the region’s real estate market using housing inventory, price gains, home sales, interest rates, and larger economic factors.
Although it was good that listing activity rose in the third quarter, it still remains well below levels that can be considered normal. This is unlikely to change anytime soon given that over 86% of Washington homeowners with mortgages have an interest rate below 5% and more than a quarter have rates at or below 3%. There is little incentive for them to sell if they don’t have to.
More germane to me is the disconnect between what homeowners believe their homes are worth and what buyers can afford with mortgage rates in the mid-7% range. Most sellers appear to be getting their asking prices, or very close to it, which reflects their confidence in the market. However, home buyers are being squeezed by multi-decade high borrowing costs.
It is all quite a quandary. However, taking all the factors into consideration, sellers still have the upper hand but not enough to move the needle from the position I put it in last quarter
Given all the factors discussed above, I have decided to leave the needle in the same position as the last quarter. The market still heavily favors sellers, but if rates rise much further, headwinds will likely increase.
About Matthew Gardner
As Chief Economist for Windermere Real Estate, Matthew Gardner is responsible for analyzing and interpreting economic data and its impact on the real estate market on both a local and national level. Matthew has over 30 years of professional experience both in the U.S. and U.K.
In addition to his day-to-day responsibilities, Matthew sits on the Washington State Governors Council of Economic Advisors; chairs the Board of Trustees at the Washington Center for Real Estate Research at the University of Washington; and is an Advisory Board Member at the Runstad Center for Real Estate Studies at the University of Washington where he also lectures in real estate economics.
Windermere Chief Economist Matthew Gardner gives an updated analysis of the U.S. housing market in 2023, using data released by The National Association of REALTORS® on listing activity, home sales, price growth, and more.
This video is the latest in our Monday with Matthew series with Windermere Chief Economist Matthew Gardner. Each month, he analyzes the most up-to-date U.S. housing data to keep you well-informed about what’s going on in the real estate market.
U.S. Housing Market 2023
Hello there, I’m Windermere Real Estate’s Chief Economist Matthew Gardner and welcome to this month’s episode of Monday with Matthew. The National Association of REALTORS® released their data on the U.S. housing market in August, and it contained a few things which I found interesting and wanted to share with you.
As you can clearly see here, the number of homes for sale remains at close to historic lows. When adjusted for seasonality, there were just 1.03 million single-family and condominium homes for sale in the month of August, and that’s down 8.3% from a year ago and the second lowest level in 2023. When adjusted for seasonal variations, there were just over 911,000 single-family homes for sale in the month, that’s 15% lower than a year ago and 36% below August of 2019. And the condominium market is not faring any better with just over 123,000 units available for purchase, listing activity was down year-over-year by just over 9%.
Homes for Sale August 2023
And to give you a little different perspective, this chart shows you the total number of units for sale in the month of August going back more than 20 years and I think it gives a pretty good indication as to how tight the U.S. housing market really is.
Now, we’ve talked before about the reasons why supply is so limited, and the blame is almost totally attributable to mortgage rates with sellers remarkably reluctant to move because that would mean losing the historically low mortgage rate that they currently benefit from. And as the old saying goes, “you can’t buy what’s not for sale,” and this is certainly true in the housing market today.
U.S. Housing Market 2023: Sales Activity
With such limited choice in the marketplace, it’s unsurprising to see home sales having plummeted following the pandemic induced surge we saw in 2021. At an annual sales rate of 4.04 million units, that is only 40,000 more than the low seen this January and we are now holding at levels we haven’t seen since 2010. Interestingly, single-family sales did see a little jump at the start of this year, but they have since pulled back—likely a function of rising financing costs, which were getting close to 7% in June.
But the condominium market, while certainly down significantly, appears to be somewhat more resilient. I find this interesting as we have not seen any palpable increase in listing activity for multifamily units.
Home Sale Prices Off All-Time High
When prices started to fall in the summer of 2022, many expected to see them continue to plunge in a manner similar to that seen following 2007 collapse, but that has certainly not been the case. Sale prices have rebounded and remain remarkably resilient—especially given significantly higher financing costs.
Although we did see a small drop in home prices between June and July of this year, U.S. home prices are only 1.6% below their 2022 peak; they’re up 3.9% year over year; and up by 11.1% from the start of 2023.
Single-family home prices paint a similar picture with prices down by 1.8% from peak; but up 3.7% year over year, and up 11.2% from the start of the year. Interestingly, sale prices in the Northeast were actually 3.5% higher in August than their 2022 peak. And condominium prices are just 0.1% below the high seen in June of last year. Prices are now up 6.2% year over year and are 11.6% higher than we saw at the end of 2022.
Now, of course the data shown here is unlikely to reflect the recent surge in mortgage rates so it will be interesting to see what impact that has not just on sales but sale prices when the September and October data is published.
My intuition suggests that—even with mortgage rates where they are today—as long as they don’t move significantly higher, prices at the national level are unlikely to collapse. But I do see sales volumes pulling back further as listing activity remains very constrained.
Price Growth vs Payment Growth
This chart shows a different way to look at the impact that mortgage rates are having on the market. The dark blue line shows year-over-year home price growth, and the light blue line shows the 12-month change in average mortgage payments.
Although we did see that annual growth in mortgage payments fall to just 10% in June of this year—the first time we have seen that since 2021—it has subsequently jumped back up. This means that a buyer of a median priced house in the U.S. is faced with payments that are 26 and a half percent higher than they were 12 months ago. At the same time, home price growth has stalled.
As I’ve mentioned in several past videos, I find it unlikely that inventory levels will increase significantly in 2023, and I also believe that supply will be constrained next year as well as rates remain at elevated levels.
As we know, it is this lack of inventory that has helped to support home prices; however, there is a breaking point. 10-year bond yields are holding at multi-year highs and do not appear to be thinking of pulling back at any time soon—especially given new bond issuances that the country is going bring to market in order to address our burgeoning debt levels.
And it’s because of this that I now expect to see rates remaining higher for longer, and the question then becomes how much tolerance will buyers have if mortgage rates hold where they are today or if they head closer to 8%.
Although I am not expecting this to happen, it is possible. And if it does, then sales will fall further and the underpinning of price stability will certainly be eroded. And there you have it. As always, I’d love to hear your thoughts on this subject so feel free to leave your comments below. Until next month, stay safe out there and I’ll see you soon. Bye now.
To see the latest housing data for your area, visit our quarterly Market Updates page.
About Matthew Gardner
As Chief Economist for Windermere Real Estate, Matthew Gardner is responsible for analyzing and interpreting economic data and its impact on the real estate market on both a local and national level. Matthew has over 30 years of professional experience both in the U.S. and U.K.
In addition to his day-to-day responsibilities, Matthew sits on the Washington State Governors Council of Economic Advisors; chairs the Board of Trustees at the Washington Center for Real Estate Research at the University of Washington; and is an Advisory Board Member at the Runstad Center for Real Estate Studies at the University of Washington where he also lectures in real estate economics.
Low inventory has kept King County home sales pretty quiet of late, although the market is seeing some year-over-year price gains. With stock so depleted, it’s likely unit sales will remain suppressed for the remainder of the year. Find our full market recap here.
News + trends.
[THE STATE OF] REAL ESTATE
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Fall doesn’t have to be all about jack-o-lanterns and Halloween. A warmer color palette, sumptuous fabrics and one (or two) thoughtfully placed gourds can be just what you need to really Feel Fall.
Nothing beats the feeling of buying a new home. You’ve worked hard with your agent to find the right home for you, you’ve worked with the seller to finalize the deal, and you’ve signed all the paperwork to transfer ownership. Congratulations! Everything has led to securing your new home, so now that you’re officially moving, what do you do next? Here’s a quick guide to the move-in process to help you get settled into your new home.
Moving Day
The day you move, you’ll be juggling all kinds of timelines at once. You’re coordinating with movers, arranging for trucks to be picked up and dropped off, and making sure that nothing gets damaged in the process. The best thing you can do on this chaotic but exciting day is to be available. Being on hand at your new home to answer the mover’s questions will help speed up the process.
It helps to have a checklist of your important items to make sure nothing has gotten lost during the moving process. Check these items off one by one as the movers bring them in. Next, you’ll want to confirm that the utilities have been turned on and are ready for use. Check all lights, smoke detectors, appliances, CO2 alarms, your home security system, fire extinguishers, etc. Finally, install new locks and make sure your keys work properly.
Clean and Unpack: Before you start emptying your boxes, it’s a good idea to wipe down the surfaces to keep your items from getting dirty. A full deep cleaning of your home may not be in the cards just yet since there’s still plenty of moving to be done, which inevitably brings more dust and dirt in the house.
Childproof and Pet-Safe Home: If you’ve got little ones and/or pets, this is the time to set up their accommodations. Learn more about how to properly childproof your home so your kids can feel like it’s home sweet home from day one. When preparing to house your pets, keep in mind that some cleaning methods are more pet-friendly than others.
Setup and Organize: Now it’s time to get everything in its right place. Organize room by room, storing items in logical places where you won’t forget them as soon as they’re stowed away. The first rooms you’ll want to tackle are the bedrooms, bathrooms, and kitchen. These are the rooms you’ll need the most during the first few days in your new home, so having them put together will better position you to tackle the rest of the house. Getting your closets, bathroom cabinets, and kitchen drawers organized from the start will make for a more enjoyable moving process.
Update Your Information: You’ll also want to update your address everywhere it’s applicable as soon as possible, consider setting up mail forwarding to ensure you don’t miss any important mail in the meantime.
For more information on the moving process, visit our comprehensive Moving Checklist, available as a interactive webpage and downloadable PDF here:
Windermere Chief Economist Matthew Gardner demonstrates how the U.S. housing market is adapting to low inventory levels. He touches on the new construction industry, supply changes in large metro areas, median home sale prices, and more.
This video is the latest in our Monday with Matthew series with Windermere Chief Economist Matthew Gardner. Each month, he analyzes the most up-to-date U.S. housing data to keep you well-informed about what’s going on in the real estate market.
Low Inventory Housing Market
Hello there, I’m Windermere Real Estate’s Chief Economist Matthew Gardner and welcome to this month’s episode of Monday with Matthew. As we are all aware, the housing market has softened considerably with the number of existing homes available to buy close to record lows. Today we are going to talk about supply, and how the market is starting to adapt to low inventory levels.
Housing Market Inventory
This chart shows the average number of homes on the market by year. Although year to date we have seen a little bit of an uptick, it’s clear the country remains supply-starved. And with just over three months of inventory—as opposed to the normal four to six—the market is clearly out of balance. But even though inventory levels have risen nationally, as I’ve said many times before, not all markets are equal.
Housing Inventory Changes in Metro Areas
This chart shows how supply levels have changed. The data here is representative of the 100 largest metropolitan areas in the country. The horizontal axis shows the change in inventory versus the second quarter of 2022, while the vertical axis shows the difference and the number of homes for sale versus the second quarter of 2019. I think you’ll agree that the difference is stark. Although two-thirds of the metropolitan areas have seen the number of homes for sale improved versus the same period a year ago, just one (Austin, TX) had more homes for sale higher in the second quarter of this year than it had in the second quarter of 2019.
And even more stark was the fact that inventory levels in 53 of the 100 largest metropolitan areas were down by more than 50% compared to the same period three years ago.
Interestingly, on a percentage basis, smaller metro areas saw the greatest decline compared to three years ago. For example, in Hartford, CT, the average number of homes on the market in the second quarter was just over 900, down by 80% from the second quarter of 2019 where there was an average of over 4,400 units for sale. Supply levels were down by 78% in Stamford, CT; 75% in New Haven, CT; and 74% in Allentown, PA.
It is true that supply levels are generally higher when compared to a year ago, with the greatest increase being seen in select markets in Florida, Tennessee, Texas, and Oklahoma; however, other than in Austin, supply levels remain well below their long-term averages. So, how is the market adapting? The answer is rather interesting. Even with all the talk of escalating material, land, and labor costs, it’s the new home industry that has been taking advantage of the lack of housing supply.
New Construction Market Trends
This chart shows the share of new homes on the market compared to their resale counterparts—here we are just looking at single-family homes. Historically, new construction makes up roughly 10% of active listings at any one time, but as you can see here, that share has been rising not just since the end of the pandemic but for the past several years. Although off the high seen a few months ago, 30% of the single-family homes for sale this July were brand new. I find this particularly interesting because, historically speaking, a premium was paid in order to buy a new home rather than an existing one.
Median Sale Prices: New and Existing Homes
As you can see here, the spread in median sale prices, which was pretty stable from 1990 until the bursting of the housing bubble, grew significantly starting in 2011 and in 2022. The premium averaged 16%. But when we look a bit closer at the numbers, they gives us a somewhat different picture.
You can see here the spread has dropped to just 6%. And in June of this year, the difference was a mere $1,000.
With the share of new homes for sale holding at a four-decade high, the share of sales themselves is at a level we haven’t seen since 2005. But even though we know that there is demand for housing, shouldn’t sales be constrained by mortgage rates? Well, what is happening is that builders are attracting buyers through incentives, and here we’re talking about mortgage rate buydowns which are becoming increasingly prevalent across the country.
In fact, a recent survey from John Burns Consulting suggested that 30% of home builders reported using interest buydowns more in the second quarter of this year than they had previously. And this is attracting buyers to visit new development communities.
An example of these buydowns is the 2/1 program that DR Horton—the largest home builder in the country—is offering at some communities. This program gives buyers a mortgage rate that starts at 3% for the first year, rises to 4% in year two, and then goes to 5% for the balance of the 30-year term. That’s pretty compelling, given where mortgage rates are today.
The bottom line is that as far as I can see, the new home industry will continue to take an outsized share of the market for the balance of 2023 and likely through most of 2024. That said, once the market starts to normalize, I expect them to pull back from these incentive programs, making them more likely to start raising asking prices, and we will return to the traditional spread between the prices of new and resale homes.
Although it’s pleasing to see more homes being built, I still believe that the country will still be running a housing deficit when it comes to meeting demographic demand and this will continue to hurt first-time buyers who continue to be priced out of the market.
As always, I’d love to hear your thoughts on this subject so feel free to leave your comments below. Until next month, stay safe out there and I’ll see you soon. Bye now.
To see the latest real estate market data for your area, visit our Market Update page.
About Matthew Gardner
As Chief Economist for Windermere Real Estate, Matthew Gardner is responsible for analyzing and interpreting economic data and its impact on the real estate market on both a local and national level. Matthew has over 30 years of professional experience both in the U.S. and U.K.
In addition to his day-to-day responsibilities, Matthew sits on the Washington State Governors Council of Economic Advisors; chairs the Board of Trustees at the Washington Center for Real Estate Research at the University of Washington; and is an Advisory Board Member at the Runstad Center for Real Estate Studies at the University of Washington where he also lectures in real estate economics.
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