Last Updated: January 18, 2022
As the housing market is getting back to its pre-pandemic activity, its home sales problem has come to light once more. Namely, due to a low supply of homes and record-high prices, sales have been drastically dropping for the last four months, according to recent data from the National Association of Realtors.
Data shows that home sale rates have been dropping for four consecutive months, with the latest drop recorded as 0.9% (or 5.8 million units) in May. Although technically the sales have increased by 44.6% compared to May 2020, when a little over 4 million units were sold, the effect of the pandemic should be taken into consideration as a major factor in last year’s low numbers.
The pandemic put a wedge into home construction by limiting supplies and creating material shortages. Although the situation is getting better, the building capacity is still affected and fewer new homes are being built to satisfy demand.
With supplies running low, many potential buyers are unable to purchase their dream homes. Although the housing inventory rose by 7% between April and May, it’s still down 20.6% compared to last year. With May’s unsold inventory of 1.23 million units, it would only take 2.5 months for it to sell out at this pace.
First-Time Home Buyers Giving up as Prices Increase
Due to the low inventory, unit prices are at a record high. Compared to May 2020’s median price of $283,500, the market has seen a 23.6% increase in May 2021, bringing the median price to $350,300. As a result, many potential first-time buyers with bad credit or a low income struggle with home purchases.
One of the biggest issues caused by the pandemic is unemployment. With many Americans left without a job, the goal of buying a home has become less attainable. Although there was a sharp decline in mortgage rates in April, it still wasn’t enough to convince buyers to take the plunge, as they may still struggle with their downpayment.
Anyone who has done thorough research before buying a house knows the importance of having a sizeable downpayment for getting a good rate and deal on a house. Even if that isn’t an issue, the actual purchase of a home isn’t where the money spending stops. Costs for renovations, repairs, or even home warranty can ramp up.
That said, the situation isn’t the same throughout the whole country. Although the Northeast, the West, and the South suffered a decline in sales, they rose in the Midwest due to its more affordable prices—the median price was $268,500 in May. This might be an option potential home buyers could take into account if they’re in a rush, as the overall housing situation isn’t expected to improve any time soon.