A devastating combination of conditions – high interest rates, high construction costs, and low supply – has affected the housing market this year.
“We believe we’re in trouble right now,” Jerry Howard, CEO of the National Association of Home Builders, told Yahoo Finance Live (video above), saying he’s “particularly concerned about the first-time homebuyers. .”
The share of first-time home buyers fell to 26% from 34% a year ago, according to the National Association of Realtors, while the age of first-time buyers rose to 36 from 33.
“In the first home buyer market, it’s also true that construction costs are still about 10% higher than inflation,” Howard said. “So the cost of construction, the cost of wages, it’s all in play.”
Building materials that go into home construction, including lumber, steel and precast concrete, increased by 19% year-over-year in April; and prices of other materials such as asphalt and water pipes will jump 30% in 2022.
‘Different from 2008’
Although home sales fell for the 10th month in a row last month, Howard said there is a difference between today’s housing market slowdown and what happened in 2008.
“The big difference is that in 2008 we had a lot of things,” Howard said. “Here, we don’t have many things. To be honest, we are lacking.”
For example, existing homes that were not sold were listed for 3.3 months longer than those that were sold, according to the National Association of Realtors. A 6-month supply is considered a sufficient market.
“I don’t think people should panic right now,” Howard said of today’s decline compared to the stock market crash of 2008. “And that will limit how low prices can fall.”
Restoring the market
Howard believes the market will begin to recover in early 2024 if the Federal Reserve lowers its short-term interest rates and global gridlock eases.
“I think what’s going to drive that change is going to be lower interest rates,” Howard said. “And I think we’re going to eventually redo our products, which will help us lower the construction costs.”
Aside from economic and infrastructure policies, Howard also said that changes in government policy could also help to end homelessness going forward.
“I also think policymakers are starting to realize that many of the policies we have at the local, state, and federal levels are increasing the cost of housing,” Howard said. “And I think they’re finally going to do something about it.”
Rebecca is a reporter for Yahoo Finance.
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