- Mortgage applications to buy a home fell 3% last week after surging for five straight weeks.
- There isn’t enough housing supply to meet demand.
- But demand could drop as young people can’t afford a house.
The U.S. housing market is showing signs of weakness. While mortgage rates were at a record low last week, total mortgage applications volume fell by a seasonally adjusted 8.7% from the previous week, according to the Mortgage Bankers Association.
After surging for five consecutive weeks, homebuyers’ mortgage demand fell by 3% for the week but was still 18% higher than a week ago.
A tight supply of homes on the market is one of the reasons for the decline in mortgage applications.
Crypo The Housing Market Has A Supply Problem
One factor that may potentially crimp growth in the months ahead is that the release of pent-up demand from earlier this spring is clashing with the tight supply of new and existing homes on the market. Additional housing inventory is needed to give buyers more options and to keep home prices from rising too fast.
There is a severe shortage of homes, both in new homes and in resales.
According to Moody’s chief economist Mark Zandi, this lack of supply is one of the reasons why existing homes sales have declined even though new homes sales have surged.
The most significant sales jump occurred in homes not yet started. This resulted in a 15% drop in the supply of homes for sale under construction compared to a year ago.
Sales of homes not yet under construction are rising because of capacity limitations in the building industry.
Stay-at-home orders have fueled the already growing demand for suburban homes, and buyers are now favoring new homes over existing ones. This might reflect a shift in consumer preferences, with shoppers showing a penchant for cleaner, never-lived-in homes.
Inventories nationally fell 18.8% compared to May 2019. The limited supply kept the pressure on house prices. The median price of an existing home sold in May was $284,600. That’s a 2.3% increase from May 2019 and the smallest annual rise since February 2012, when the housing market had barely recovered from the Great Recession.
Cheaper homes sold at a fast pace, while sales at the high end of the market were down sharply.
Crypo Demand For Housing Might Fall In The Coming Months
Housing demand could fall in the coming months amid the ongoing pandemic.
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Millennials are a key demographic group to watch in the housing market. As they have been especially struck by job losses and don’t have much savings, it will be hard for them to buy a house. Homebuyers are mostly high-income earners.
The shortage of affordable housing means that low-income earners are left out of the housing market.
It’s also harder to get a mortgage, as lending criteria are tightening.
Lenders ask for a higher credit score and a higher down payment. For instance, JP Morgan asks borrowers to put down at least 20% on a home and have a credit score of at least 700.
People who lost their jobs or who earn a low income won’t be able to meet those criteria. So, they aren’t able to profit from record-low mortgage rates.
Economist Mark Zandi said that the housing market should “cool off” later this year. The sector will weaken as some of the government aid and regulations used to support the economy expire.
The confluence of high unemployment and the end of the forbearance measures means that we’ll get more defaults and ultimately more foreclosures, more foreclosure sales, and that’ll put some weakness into the housing market.
To resolve supply issues and help millennials and low-income earners buy a house, more affordable homes are needed.
Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com.
Last modified: June 24, 2020 6:05 PM UTC