Typically, the appearance of “for sale” signs in front yards across the country is a sure mark of spring. Not this year. Buyer demand is high, but home supply is low. Fewer homes are coming to market compared to last year, and those that do are selling at record speed. “This is a sellers’ market tried and true, yet sellers have been slow to come on board,” says Nela Richardson, chief economist at brokerage Redfin.
Meanwhile, according to the National Association of Realtors, in March existing home prices clocked the 61st consecutive month of gains. Normally, such low inventory would be a drag on sales, but not so far. “People are out there and they are buying homes,” notes Svenja Gudell, chief economist at home search giant Zillow. “Oftentimes they are buying them in any shape or form they can get them.”
Rarely are buyers and sellers so out of sync, meaning it is anyone’s guess where the market goes from here. Here are a six things the experts are watching this season:
1. Meet the new home buyer, same as the old home buyer.
One of the most surprising things about the current market is that we’ve been here before—last year. As pros reasoned the market would begin to work itself out, buyers kept at it. “On the demand side I don’t think the market ever stopped from last year. People have been looking at anything that drops,” says Richardson. Gudell points out that Zillow’s search traffic typically picks up from February through April, but that seasonality has been less pronounced this year. “We have so many buyers left over from the last season that are still actively in the market.”
2. Lower than anticipated mortgage rates could juice demand.
Some good news: the rate on a 30-year fixed-rate mortgage dipped to 3.97% last week, according to Freddie Mac, the first time the rate has crossed below 4% since November. Mortgage rates are volatile and—especially with the Federal Reserve forecasting two more interest hikes this year—unlikely to stay this low for long. From a demand perspective, the timing couldn’t be better. Realtor.com Senior Economist Joseph Kirchner calls the drop the current market’s “biggest opportunity.” Imploring: “This is the time for home buyers who have identified a home to purchase to pull the trigger and lock in a low rate.”
3. Supply will not meet that demand.
Among the biggest logjams in the market is owners’ reluctance to become buyers. Current rates are less likely to entice people who already own homes since many bought or refinanced when rates were even lower. (Rates spent most of 2016 near 3.5%). “We are stuck in this cyclical gridlock,” notes Ralph McLaughlin, chief economist at home search site Trulia. “Existing owners are having trouble trading up.”
Builders are a potential “relief valve,” says McLaughlin. They “might be able to sneak in and provide that supply opportunistically.” There are signs some builders are beginning to reenter the market after a long period in which they said that labor, land and zoning costs were too high to justify the expense. Housing starts and completions are up, but not enough to bring must relief this season. More promisingly, the latest Census Bureau data shows authorized building permits were up 17% year-over-year in March, which could be enough to help in the long run.
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