According to the National Association of Realtors, sales of newly built, single-family homes dropped to an annual rate of 544,000 units in October. That’s the lowest pace since March 2016, and it happens at a time when a housing-shortage issue is slowing down the US housing market. In March, Business Insider reported that existing home sales were 4.5% below the market potential. Here’s what you need to know to understand the problem:
What is Causing It?
The law of supply and demand is one of the most well-known economics principles. In a nutshell, low supply and high demand increase price whereas high supply and low demand lower price.
Right now, the US housing market is experiencing a lack of supply and robust demand, which is upping the prices for existing homes. Higher prices mean that fewer people can afford these houses, which slow down sales.
That’s not the only cause of the problem, though.
Mortgage rates are rising, and existing homeowners that have mortgages with low rates don’t want to sell their homes and lose their prime rates. Consequently, it’s causing a housing-shortage issue in the United States.
Also, keep in mind that the home seller is also a home buyer. Think about it: People don’t sell their house to become homeless, they sell it to buy another one. If they can’t sell, they can’t buy and, therefore, someone else won’t be able to sell their house, too.
While the shrinking number of homes available keeps pushing up prices, the inventory is slowly rising again in the biggest markets.
Let’s keep an eye on what is going to happen in 2019. Here’s hoping for a recovery!
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