The Challenges Brought by a Cooling Housing Market
With the hot housing market that erupted during COVID-19, experts are starting to say we are “cooling off’ and trending toward a housing recession, reported Michael Bergin, Co-Founder, and VP of Platform at Higharc, a platform for home building design, construction, and sales.
Housing market analyzer and owner of Zelman & Associates Ivy Zelman predicted the 2008 housing market crash. The truth of her prediction may lend accuracy to her forecast for the impending market. Ivy Zelman is calling for a drop in sales price of five percent in 2023 and another five percent in 2024. The National Association of Realtors states the “Latest Housing Indicator” for the median home price is $403,800.
This means a return to a buyer’s market, and it’s been a really long time,” stated Bergin.
Why is this a potential problem? There is still a housing shortage. While more than one million homes were built the last year, only eight of the past 65 years have seen less than 600,000 homes built. This 400,000 difference in the least productive years is small when comparing the relative demand. NPR dove into the issue, stating that there are 3.8 million shortages in housing units in the U.S.
And that projected shortage may not even be accurate. “Demand for new homes has increased so massively since 2020 that it’s hard to tell how many buyers are still out there who have been saving and waiting the whole time,” Bergin explained.
New communities are selling out before the sales center is even open, which is a stark contrast to the situation just a few years ago. How has this impacted customization?
Bergin said, “Buyers had expected a level of customization, they’ve become accustomed to this. Now we’ve seen at the peak of the market, builders pulling back on those customizations and making it so that it’s easier for them to anticipate when the home is going to be built and when it’s going to be ready because there’s less variability, less flexibility”. With the cooldown that is starting to reverse again—there is a pushback toward buyers who want customization.
However, some builders are starting to hurt—especially those on the higher end. For example, Toll Brothers experienced a 60 percent decline in purchase contracts year-over-year. Homebuilders are beginning to look to technology to secure sales because there are fewer qualified buyers on market.
Whether Zelman’s prediction comes to fruition or not, Bergin knows the housing market will experience some drastic changes in the next few years.
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