In 2020, while the pandemic raged worldwide, the housing market in the United States remained very busy. Lower mortgage rates allowed more people to take out loans and invest in real estate properties. It caused a boom; whereas other industries went quiet as businesses closed one by one, the housing market gained more value. It was a record-breaking year for home sales.
Now that the country is on its way back to normal, the housing market is showing no signs of slowing down.
Price of a House
However, in the past year, the cost of becoming a homeowner also went up. Because there were more buyers in the market thanks to the lower mortgage rate, listings were immediately snapped up. There were even auctions that further elevated the price of a house for sale. Some investors admitted that they bought homes before they even saw them. In the past year, the demand for housing significantly exceeded the supply of houses across the entire nation.
In fact, the cost of a house on average was about 13.2 percent higher in March 2021 compared with March 2020. Moreover, the number of available houses across the U.S. went down 20.5 percent to 1.16 million this April.
So, it is still a challenge for homebuyers to find the perfect home. Buyers have to compete with one another for a single property. Now more than ever, having a real estate agent is an advantage because they can aid in finding, negotiating, and buying a house in the busy housing market.
Will the Supply of Houses Stabilize?
According to the National Association of Home Builders, about 1.42 million new houses are being constructed every year. That is not enough for the rapidly growing population of the United States. Moreover, the past year saw construction activity in the country come to a screeching halt as the nation locked down to slow the spread of COVID-19.
While construction activity has already stirred and restarted, the National Association of Realtors has warned that the tight housing supply will continue for the next three to five years.
That means, for at least a little more while, the market will continue to favor sellers. On the other hand, buyers will get no relief from the rising costs of owning a home any time soon.
By May 2021, there was just a 1.9-month supply of homes available in the market. About 3 million more homes are needed.
Supply Not the Only Factor
However, while the supply is a major problem, there are more issues that are driving the cost of owning a house up.
The same demand for new housing is also driving supply shortages for building materials across the United States. In the summer of 2020, when it became clear that life was not about to go back to normal, many homeowners used their free time and money to purchase building materials, particularly wood, to construct decks, sheds, playhouses, and additional rooms for their homes.
Then, by autumn, the construction industry went back to work. Builders tried to catch up from the time lost during the lockdowns. The demand for more building materials shot up.
Suppliers cannot easily scale up their operations. While there is wood, it takes more than two years to build mills that will process them and prepare them for construction. Moreover, there is the problem of labor. Suppliers are trying to increase the output of existing mills, but there are not a lot of capable hands to support and operate machinery. For years, there has been a trend away from blue-collar jobs. More people go to college and, therefore, workers seek different roles. The population in rural areas where most of these mills are located has also been dwindling.
In addition, the number of truck drivers, who play a major role in the production and transport of wood, is also in short supply. The American Trucking Association says that 60,000 truck drivers need to be hired to meet the great demand nationwide.
As a result, the construction of new homes that will satisfy the demand for new homes in the United States has also become more expensive. Some developers are already raising the sale price of real estate properties to get back the money they spent on materials.
All these factors are contributing to a higher cost of becoming a homeowner, far more than what many families in the United States can afford. No one knows exactly when the price of houses will stop increasing and go down. However, seeing the current trends, it likely will not happen any time soon.