Key Takeaways
- Compared to February 2022, there were 19% fewer homes being built as of June 2022
- High interest rates are causing a market cooldown
- New housing is often affected by municipal complications
Why are fewer homes being built in today’s market?
With the upward trending nature of the real estate market, many homeowners and homebuyers are left wondering: why aren't more homes being built if there’s such great demand? Under existing market conditions the United States is undergoing a housing shortage despite transitioning into a buyer’s market. The comical paradox of these issues highlights the current problem for homebuilders.
Consider the homebuilder’s market dilemma:
- Worker shortages: Due to recent economic conditions, finding skilled labor has become much harder
- Increased commodity prices: During the peak of COVID, prices for residential construction materials skyrocketed
- Supply shortages: Due to the supply chain crisis, obtaining supplies has become extremely difficult and slow
As a result of these obstacles concerning labor shortages, cost increases, and supply-chain disruptions, the construction of new homes has slowed down tremendously over the last few decades.
Homebuilding Slowdown
In April 2021, homebuilders generated 13% less single-family homes compared to March 2021. Moveover, in June 2022, homebuilders generated 19% less single-family homes since that of February 2022. The burning question remains: why are they cutting down on building new homes?
Simply put, the answer is: Interest rates.
The rates on 30-year conventional mortgages have recently increased. According to market experts, this is a good indication that the booming housing market is cooling. There are plenty of high-end homes available in the market, however, the shortage of homes is very substantial for middle- and lower-income families. As if many consumers weren’t already struggling to come up with a 20% down payment to avoid private mortgage insurance, they are also now dealing with interest rates that are putting many homes out of their reach as these rates have added hundreds of dollars to their typical monthly payments. This combined with rising prices for necessities such as fuel and groceries, in addition to a battered stock market, leads to a housing market in horrible shape with plenty of potential buyers pulling back from the market. The bottom line highlights that an imminent slowdown is underway. Some data is even suggesting that we’re headed for a housing recession.
What is NIMBY-ism?
New housing is often very difficult to build where it is needed the most. Impeded by a plethora of municipal zoning laws and regulations, the rising cost of development can drive homebuilders to give up.
And then there’s NIMBY-ism.
NIMBY-ism, an acronym for the ‘Not In My Backyard’ protest, is becoming a rising movement across the country as existing homeowners join to oppose and challenge changes to their communities. Homeowners who are a part of this movement oppose many changes such as increased traffic, new developments that block existing scenic views, impacts to their property taxes and property values, etc. Due to their commitment to their community values, many homeowners in the Not In My Backyard mindset are willing to protest and fight for years. Evidently, as seen through their devotion to the cause, is it to no surprise that they often win.
Are Solutions Feasible?
Although there are many complications to the current housing market, solutions are possible. There have been recent conversations regarding ‘social housing’. This idea is, at its core, a new and improved version of what used to be called housing projects reimagined for the 21st century.
On the other hand, many of the remedies for our housing drawbacks are largely intertwined with politics, thus, progress can potentially be glacial.
Despite all the doom and gloom we witness, deals still remain to be made. There are still excellent properties available for purchase and there are still thoughtful people who are willing to work with buyers. However, the waters will certainly be tougher to navigate in the near future given the volatility of the market.
How HomeOptions can help you
Despite the stress caused by the ambiguity of the housing market, HomeOptions wants to help homeowners by paying them now for a chance to work with them in the future. At HomeOptions, by joining our Homeowners’ Rewards Program, you can get rewarded today with an upfront cash offer simply for being a homeowner. Moreover, if you ever decide to sell your home, we’ll take the stress off your shoulders by matching you with a top 25% agent with expert knowledge of your local metropolitan area to help you list your property. At HomeOptions, we want to show you why home ownership should pay dividends. Visit us at https://www.homeoptions.com/ to find out how much your property can qualify for.
More questions? Give us a call at 800-357-9992 from 9AM-5PM PST or email us at support@homeoptions.ai for more information.