The housing market witnessed a 35.2% year-over-year increase in the number of May home sale listings, Realtor.com finds. Fannie Mae Chief Economist Doug Duncan joins Wealth! to provide his expert insights on this trend and its potential impact on the housing landscape.
Duncan notes that the current housing market is “supply constrained,” a narrative that has persisted for several years. He highlights that the growth in listed supply currently stands at around 3.5 months’ worth of housing, whereas the typical range for listed supply is between 5.5 and 6 months. Additionally, Duncan points out that the inventory of newly built, completed homes for sale is “the highest it’s been in three decades,” creating further affordability challenges.
For homebuyers navigating the current housing market, Duncan offers three pieces of advice: ensure a strong credit score, “shop around” for affordable options and deals, and “take a well-educated financial management approach” when making financing decisions related to home purchases.
For more expert insight and the latest market action, click here to watch this full episode of Wealth!
This post was written by Angel Smith
Video Transcript
The number of homes for sale grew by over 35% in May compared to last year.
That’s according to realtor.com.
Now, that sounds pretty good if you’re in the market, but it’s still low compared to pre pandemic levels.
And that supply constraint is impacting costs.
Prices for single family homes rose over 7% year over year according to Fannie Mae and to break down how you can hack the housing market.
We’ve got Doug Duncan, Fannie Mae, chief economist here with us.
First.
Let’s just start broad strokes here.
How would you define the housing market that we are navigating through right now?
Supply constraint.
Uh That’s been a theme for several years.
I know it, it, it’s gotten to be kind of repeating the story, but it is, it’s the story.
Uh Your point on the the growth in the listed supply that puts us up to about 3.5 months normal is probably somewhere 5.5 to 6 months of existing homes.
One of the interesting things that I think reveals the stress of affordability for the next phase of uh entry level buyers is that the number of completed new homes available for sale is the highest it’s been in almost three decades.
So you have to ask the question.
If the market is supply constrained, then why is the completed new homes number as high as it is?
Why is that?
Well, part of it, I think it’s because typically the entry level buyer, the first time buyer buys an existing home, they fix it up, build a little sweat equity, then they use the, the cash from the sale of that home to leverage themselves up to a house that maybe has more attributes that they like their family got bigger.
Story continues
So they need a little bigger home and some of them turn to the new homes market.
But what’s unusual today is that very low supply of existing homes.
And what you see is the share of first time buyers who are buying new homes, but builders have a price point to which they can build and it may be diverging from what that first time home buyer can buy.
Today.
As we’ve seen, uh, interest rates go up and house prices go up both constraining affordability at today’s mortgage rate.
What does it make more sense to do for first time home buyers?
Does it make more sense to go after an existing home or does it make more sense to, to wait and, and ultimately kind of bank on a build out here?
Well, first of all, it depends on, uh on what’s available uh if there is a very low supply of existing homes, you may want to buy there but not find what you look for.
Second thing is what’s your financial capability and what I always give people uh as advice when they ask is now a good time to buy a house is if you have a family budget or a household budget.
So that’s, that’s the most important clause because any lender you talk to is gonna ask you things that will come out of that budget.
So if you can budget it all out, you will know how immediately to answer those questions and you’ll get a better deal at the end of the day.
So if at today’s price and the amount money that you’d have to borrow, the payment fits in your budget that you have, then you buy today, you’re a homeowner if you’re speculating on whether interest rates are gonna fall, whether prices are gonna fall on refinancing.
Yeah, but then you’ve moved into the realm of being a speculator.
Some people can afford that.
A lot of entry level buyers can’t really afford that.
So you wanna take a well educated financial management approach to, to that decision because you would like to be able to sustain it.
A lot of people wanna know what are, what are the Fannie Mae top tips for buying in this market right now?
Well, that the first one would be get your credit in shape because you’re no matter who you talk to, there’s different kinds of lenders.
Uh, all of them are gonna look, first of all at, what’s your, what’s your credit?
Do you have a good credit score?
Uh, do you have a good record of repaying uh, debts which will be, uh, showing up in that?
They wanna know what, what’s your risk profile?
The second thing would be shop around.
We have evidence that shows if you talk to more than one lender, you always get a better deal than if you only talk to one lender, make them compete.
They, they don’t make money if they don’t make a loan to you.
So they have an interest in satisfying you just like you have an interest in getting a good deal.
So shop around for sure.
Doug Duncan, who is the Fannie Mae, chief economist Doug, thanks so much for taking the time here.
A pleasure.
Good to be with you.
