A historic housing shortage caused by the one-two punch of slow construction and strong pandemic-induced demand is finally beginning to ease.
Active home listings rose 19% in June, the fastest annual rate since Realtor.com began tracking the stat five years ago. And the number of new listings during the month finally surpassed typical pre-Covid levels, up 4.5% from a year ago. However, the total stock is still about half the pre-Covid level.
Some markets that saw the biggest increase in demand during the pandemic are now among the markets seeing the biggest increase in supply: Austin stock was up nearly 145% from a year ago, Phoenix was up 113% and Raleigh was up by almost 112%. Other markets are still seeing inventories dwindle: Miami is down 16%, Chicago 13% and Virginia Beach 14%.
“We expect additional inventory growth in July, building on accelerated improvements seen in June,” said Danielle Hale, chief economist at Realtor.com, adding that supply growth increased over the month.
And Hale said even more homeowners could decide to sell, adding new offerings as buyers struggle with increased costs and struggle to find homes that fit their budget.
However, the growing supply does not yet lead to an easing of sky-high house prices. According to Realtor.com, the median price hit another all-time high of $450,000 in June. Annual profits moderate slightly, but are still rising by almost 17%. This is partly because the share of larger, more expensive homes is increasing.
According to a new report from real estate data provider ATTOM, the cost of owning a home at an average price in the second quarter cost 31.5% of the average U.S. wage. That’s the highest percentage since 2007 and an increase from 24% the year before, the biggest jump in more than two decades. Lenders generally see a debt-to-income ratio of 28% as the ceiling for approving a mortgage. That’s why some potential home buyers are no longer eligible for a mortgage.
As a result, the affordability of buying a home fell in 97% of the nation in the second quarter, according to ATTOM. That’s an increase of 69% in the same quarter a year ago, and the highest level since just before the housing crash during the Great Recession.
ATTOM calculates affordability for average wage earners by determining the amount of income needed for major homeownership expenses on an average-priced home, assuming a loan of 80% of the purchase price and a maximum debt-to-income ratio of 28% .
“With interest rates nearly doubling, homebuyers are facing monthly mortgage payments that are between 40% and 50% higher than a year ago — payments that many potential buyers simply can’t afford,” said Rick Sharga, executive vice president of market intelligence at ATOM.
A few factors could thwart continued growth in inventory levels, including a slump in potential sellers who may decide to wait for the market to recover. Still, Realtor.com’s Hale noted that new and pending home sales rose this month, so some people may feel now is the time to buy.
“As expectations of higher future mortgage rates rise, today’s homebuyers may be more motivated, especially now that they see more options to choose from,” Hale said.