With warmer weather comes the homebuying season, which is when many Americans typically jump into the market either to buy or sell.
Money expert Clark Howard says this year's real estate market continues to be affected by the one-two punch of high prices and high mortgage rates.
“Last year, we basically didn’t have a spring selling season,” he says. “This year, there’s pent-up demand at the same time, home prices haven’t really gone anywhere in the last year, but mortgage rates have stayed stubbornly high.”
Why Is the Housing Market So High?
The housing market remains high — and out of reach for so many prospective first-time homeowners — due to several factors happening at once.
Baby boomers are living longer and creating more households, according to CBS News, which cites a Wall Street economist.
Another issue is affordability. Mortgage rates and prices continue to keep new buyers out of the market.
"Homebuyers today are spending about 33% of their income to become homeowners," Clare Trapasso, executive news editor for Realtor.com, tells BankRate.com. "That's about double what they spent in 2012 and 2013 when the nation was coming out of the Great Recession."
Add to the mix the shortage of housing inventory and you can see that the market is poised to move but not by much.
What Can Homebuyers and Sellers Expect in 2024?
<span>"It'll be pretty quiet compared to historical numbers this year, but better than last year," Clark says.</span>
Clark says the person looking to either buy or sell a home in today’s market faces a real estate conundrum:
“Because the person who sells you their house, they’re going to go somewhere and be at the mercy of what the market’s doing now with higher prices and higher interest rates. Yes, they get the elevated amount for their home, but now they’ve got to go to another home with an elevated price and there’s no bargain mortgages anymore.”
With such a rough forecast for much of the year, let’s dig a bit deeper into what Clark predicts to be in store for the housing market.
New Construction
“What’s happened in the market is a very unusual circumstance that we haven’t seen since the 1940s,” Clark says. “A big portion of the housing market this year (as it ended up being last year) is going to be new home construction.”
“New home construction is usually a very small part of housing sales because only so many new homes are added each year. There’s a very large base of existing homes.
And right now people are in housing lock, they’re not leaving where they are. So the new home construction is very strong. The stocks of new home builders go up and down based on interest rate movements and things like that, but generally, they’re doing very well.”
Smaller Homes
“One thing you will see, and this is a trend all over America, is builders are building more practical square footage. They are building what you need in the house and not putting in things that you don’t need, like a formal dining room,” Clark says. “Or instead of a living room and a den, there may only be a great room kind of thing. They may be doing a galley kitchen to save square footage instead of a grander kitchen.”
To Clark’s point, builders are downsizing homes across the United States to create more affordability.
Clark and his family even downsized in recent years, moving into a smaller dwelling after years of being in a larger one.
Read our guide on how much downsizing your home can save you in 20 cities.
Financed-Based Incentives
Clark says gone are the days when builders used to sweeten the pot by offering to upgrade your countertops, build you a nice porch or finish your basement.
“Nope, those are not the incentives now,” Clark says. “What are incentives now is something that first popped on my radar a year and a half ago, and now is very common: subsidizing the mortgage interest rate on that home.”
The way it works is that a builder will typically pay the lender for an interest rate “buy-down,” which can potentially take a few notches off the interest rate, making it lower.
Clark says the buy-downs can be just for a few years or 30 years. It just depends on what is most important for you, knowing that you have a cheaper interest rate for the life of the loan if you choose to stay for a long time or just for a few years, at which point you may even consider refinancing.
Final Thoughts
Clark says while the big headlines will be focused on people selling their homes, “the real game is going to be new homes, and what is the lure that new home builders are offering in the market?”
Along with new financing incentives, Clark says smaller dwellings and new construction will characterize much of this home buying season.
Want more money-saving advice? Read our guide on how to buy a home.
[ This article was originally published on Clark.com ]
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