After avoiding a home price crash, the housing market is stabilizing. But buyers today still face a gauntlet of challenges, starting with the fact that affordable housing is still very much in short supply.
The decline in housing supply—especially for those at lower price points—has outmatched the pullback in buyer demand, creating sustained upward pressure on home values.
A new Zillow report outlines the challenges and highlights what builders are doing to meet them.
With more multifamily housing coming available in Q3 and Q4, renters may find more financial incentive to keep renting and save for a down payment, especially if new rental communities in their area sweeten the pot and make it easier to save.
The housing market is stabilizing after the turbulence of the pandemic, but the effects will be with us for a long time. Price appreciation is back to normal after a short reset, but that means buyers still face serious cost challenges and competition, especially for the most affordable houses and in less expensive markets. - Jeff Tucker - Zillow Senior Economist
Meanwhile, builders are taking stock of the situation and looking for ways to increase the production of homes more people can afford.
Homeowners locked into lower rates have little incentive to sell, which has led to record-low levels for new listings, along with an increased share of home sales for new construction.
It helps that builders often provide better buyer incentives than sellers. Those savings make it a bit easier for buyers to stomach the prospect of paying roughly twice the monthly mortgage payment compared to before the pandemic, thanks to rising home values and mortgage rates that have more than doubled since early 2022. With 20% down, the typical home buyer in 2019 was looking at a monthly payment of $875; today, that payment is a little over $1,800.
With home price growth stabilizing, cost pressures and limited options have taken their toll on sales. Zillow forecasts a total of 4.2 million existing home sales for 2023—the lowest since 2010.
BUILDERS ARE LEANING INTO IT
Builders are taking note of the challenges in today’s market and are changing tactics to meet rising costs and provide more options for motivated buyers.
High interest rates impact builders as well as buyers, and, because of this, developers are stepping up production of attached single-family home options like condos and townhomes, which are more economical than detached single-family homes.
Add in the financial incentives offered by builders—including mortgage rate buydowns—and sales of new builds have increased 24% year over year.
Also, with the just -announced partnership between Zillow and Redfin, builders and buyers can find each other more easily on both platforms: builder community pages are now accessible to Redfin.com users, and buyers on both platforms can learn about new builds not yet on the market, along with the amenities for each new development.
Developers across the U.S. are aware of the difficulties surrounding the construction of affordable housing, and what they can do is increase production of more economical options.
From Zillow’s report, that means a few things:
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Less square footage
- More levels (i.e., taller than two stories)
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Attached rather than detached single-family home types
- Starting construction off-site
In 2022, construction of detached single family homes dropped by 12% while building starts for attached homes went up by 2.9%.
