5 housing supply developments impacting the mortgage industry

August 31, 2022 4:23 PM

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A Zillow survey indicates that housing supply is slowly returning to pre-pandemic 2019 levels but may not reach them until 2024 at the earliest. Meanwhile, applications for new single family homes are down due to a lack of building materials and supply chain issues.

For more on these stories and other housing supply developments, read our roundup below.

Happy senior couple from behind looking at front of house and car

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Baby boomer homes hitting the market are unlikely to raise inventory levels

Housing supply will not significantly outpace demand in the coming decade, despite a significant number of baby boomer homes coming onto the market every year, said Gary Engelhardt, the author of a recent report from the MBA's Research Institute for Housing America.

Baby boomers downsizing, moving to other homes or passing away account 4.4 million existing homes for sale annually, which is closely matched by demand from a growing population and younger-generation households, meaning there is minimal excess, according to the report.

"Based purely on changing demographics and population growth, there is enough homebuyer demand to meet most of the existing inventory that will come onto the market over the next decade and beyond from older homeowners," said Engelhardt.

Read more:

4M baby boomer homes should hit market each year until 2032

Residential Construction Ahead Of New Homes Sales

Luke Sharrett/Bloomberg

Construction numbers hit a 49-year high but leaders remain concerned

Housing production may have reached a 49-year high in 2021, but rising house prices, tight supply and interest rates that have nearly doubled in the past year are also part of the status quo for the industry, according to a report from the Joint Center for Housing Studies of Harvard University.

A wide range of issues was covered in the JCHS annual report on the State of the Nation's Housing 2022 and while there was much to be optimistic about, several challenges are on the horizon, leaving industry insiders divided on the future.

"We just had a meeting last week with a bunch of housing industry leaders and I would say that the general thrust was, 'I've never felt so worried at a time when everything feels so good otherwise,'" said Chris Herbert, managing director of the JCHS.

Read more:

Housing construction is near a 49-year high, but is it enough?

Residential Construction As U.S. Housing Figures Are Released

George Frey/Bloomberg

Pandemic-driven construction stalls may keep home prices high

Newly constructed homes will continue to be in short supply for the foreseeable future due to COVID-19 and the knock-on effects of the pandemic, which caused a significant increase in the number of stalled construction projects in the past two years.

Some of the key factors behind this include the lack of construction workers and global supply chain issues, according to the report from LendingTree. The net result is that the completion rate only grew by 7% between 2019 and 2021, which may impact house prices.

Building material prices have risen 8% since the beginning of the year and 33% overall since the onset of the pandemic, according to the National Association of Homebuilders.

Read more:

Home construction stalls rose 47% during the pandemic

Supply levels are coming back, but only slowly

A majority of respondents in a recent survey by Zillow consider that monthly inventory levels will average 1.5 million homes by the end of 2024, returning to supply levels not seen since 2019.

"We are seeing new listings returning to the market, slowly, as we enter the hottest selling season of the year, but this supply deficit is going to take a long time to fill," said Jeff Tucker, senior economist at Zillow.

While 51% of survey respondents believe that this level will be reached by 2025, others are less optimistic. Of those surveyed, 18% do not anticipate a return to 2019 supply level until 2030 at the earliest, boosted by Gen Z homebuyers entering the market.

Read more:

Home inventory won't return until at least 2024: Zillow

Drop in new-home applications causes concerns

A lack of building materials and supply chain issues were some of the reasons behind a slow start to the year for new-home applications for single family homes, with a year-on-year drop of 12.5%, as reported in the MBA's Builder Application Survey.

The report also noted the more encouraging news that strong demand combined with higher building costs has also seen a significant year-on-year increase of nearly 15% in the average size of a loan for a new home.

"Purchase activity for new homes continues to be concentrated in the higher end of the market, and overall sales prices continue to increase," said Joel Kan, MBA's associate vice president of economic and industry forecasting.

Read more:

Supply shortages help drive down new home purchase applications

New construction continues to rise in for-sale inventory

The percentage of newly constructed homes coming onto the market continues to increase, despite supply chain issues and higher lumber costs, and now stands at more than 33% of total inventory for sale, according to research by Redfin.

"As a home buyer, you're increasingly likely to see new builds when you look up homes for sale in your target area," said Sheharyar Bokhari, Redfin economist.

Factors behind the increase in construction include low mortgage rates in 2021, a decrease in existing home inventory, the rise in working from home, and the growing demand for single-family rental homes.

Read more:

New homes make up record share of for-sale inventory: Redfin