To give a very quick breakdown of the housing market right now would be straightforward. Even with mortgage rates being the highest they have been in decades, the housing market has been resilient as consumers are still showing their want and ability to buy houses.
And that still remains true, however August showed a pullback in home sales with a total of 675,000 homes under contract, down 8.7% from July.
So this brought up some questions. Is the housing market showing weakness? Are mortgage rates finally showing their impact? And then more long term, what does the housing market look like going forward?
To answer the short term questions. I’m not surprised to see a pullback in housing sales. In reality, a large majority of people who were going to buy a house did so by now. We went through the lowest mortgage rates we have ever seen in 2021 and a portion of 2022 so a lot of home sales came in that period. Post that, those who were still on the sidelines had found a house while rates were on the rise but not quite at the level they are today. So to see a pullback in housing sales three quarters into 2023 is not surprising, nor a reason to panic.
This type of movement is natural in a market that had an explosion of growth that we had never seen just two years earlier. As far as the panic we have seen from it. I think this is more a result of fear over interest rates and consumer spending than it is about housing itself.
Looking forward, there are some potential factors that may make the housing market look different than it has historically. While it is nearly impossible to predict just how much of an impact they will have, they are two things that we haven’t seen before or at least not to this degree.
Those two factors are parents helping their kids buy houses, and Airbnb.
Two totally different factors that may have impacts in much different ways.
For the first, we have always seen parents helping their kids and will continue to do so in the future as well. However, past generations of parents weren’t the richest generation in history like we have today with the Baby Boomers. The exact number is difficult to pinpoint, but according to Yahoo Finance, the baby boomer generation owns $75 trillion in assets. So the baby boomers have the ability and want to help their kids greatly.
How does this impact the housing market? Well, all of those houses that first or second time home buyers couldn’t afford, they can now with the help of their parents. By no means is this a bad thing, parents helping their kids is an amazing and thoughtful action. However, it does make houses that were not affordable, much more affordable and tightens the housing market due to the increase in buying power of the younger participants in the market.
The second factor, Airbnb. It is easier than ever to be a landlord of a rental unit thanks to Airbnb. Whether it is a short term or long term rental, the owner just has to list their property, make sure they are adhering to guidelines, and have it cleaned up and ready to go for the next person. We have seen over a number of years and will continue to see the trend of people going out and buying property with the only goal being to Airbnb the property for income. Or if someone were to move, why not just keep your property and Airbnb it instead of selling. Less headache and hassle of a true landlord, similar or even better income. The continuing of this trend will continue to tighten the labor market as more buyers come in and buy properties to rent or those who are moving decide to rent their old home instead of sell.
Both of these factors can be negated by the building of new homes. We had seen a pullback in new home builds in the last 15 years but I can’t see this remaining true and we will see an uptick in new home building to match the amount of new home buyers coming into the market year after year.
Ultimately, we will see how the housing market plays out in the long run, but it is interesting to look at some potential factors that may impact that as well.