Home Pricing Increases Continue Amid Low Inventory

 

Despite the increase in mortgage interest rates, home prices have remained stubbornly high for those real estate buyers who can still afford to purchase a new home for sale. The reason for this is that the market hasn’t recovered from the exceptional interest rates before and during the pandemic. Housing inventory remains low, which prompts bidding wars for available homes for sale. These bidding wars almost artificially inflate home prices, and the result has been a 1.4% increase in home value from April to May, which is the highest it’s been since June of 2022.

Even though this spring’s home buying season has been muted compared to the last two years, home buyers are still in the market to buy new and previously-owned homes in the Greater New Orleans

area. Nationally, the average home value was at $346,856, almost 1% higher than a year ago and 3.4% more than the beginning of 2023.

During a normal real estate market, pricing tends to trend downward beginning in August, but experts are waiting to see what this year’s market brings. The Midwest had the highest monthly price increases, and New Orleans, considered one of the smallest markets, increased by .6%. The trend of abnormally low home inventory continues in 2023 with May showing a 23% drop in listings compared to May, 2022, and this percentage aligns with the same drop of inventory in March of this year of 22%.

In addition to the pandemic surge and buyout of existing land and houses, another factor in the abnormally low inventory has been the high mortgage interest rates. Homeowners don’t want to sell their home, which probably had a fantastic interest rate and buy a home at a significantly higher rate. Also, once they put their home on the market, and it sells, they may not be able to find a new home to move into. Overall, in a 4-year comparison of home inventory, May 2023, inventory is 3.1% less than May of 2022, and 45.7% less than May of 2019.

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Last Three Months of 2021 Saw Growth for U.S. Builders

 

December 2021 date shows that the construction of new homes climbed for the third consecutive month. Reports find that new construction homes are at a seasonally adjusted annual rate of 1.7 million units. Close to 1.6 million housing units were started at a 15.6% increase over 2020.

Even with the rising interest rates, the housing market is still going strong. The average long-term U.S. mortgage rates rose to the highest levels since March 2020 in January 2022. Lawrence Yun, chief economist for the National Association of Realtors, says economists expect to see an increase in mortgage rates this year. This is due to the Federal Reserve slowing down on purchasing monthly bonds.

Applications for building permits rose 9.1% to a seasonally-adjusted rate of 1.87 million units. This is the strongest month for permits since the beginning of the year in January 2021. Applications for building permits can forecast future building activity. Housing starts in the Northeast and the Midwest rose the most at 20% and 36%.

The National Association of Home Builders and Wells Fargo monthly survey, which gauges builder sentiment, reported that it still remained stable. This is good news since builder sentiment was down slightly to 83 at the beginning of 2022.

“Demand exceeds supply, and builders are working as hard as they can to catch up, a process that was always going to be measured in years, not months, after the massive shift in demand toward single-family homes sparked by the pandemic,” said Stephen Stanley, chief economist for Amherst Pierpont.

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