Lot lines: pricing, planned inventory stabilization

J. David Chapman

Over the past two years, multiple market trends have dictated the direction of the US housing market. First, due to the COVID-19 pandemic, people were leaving big cities and buying houses in the suburbs. This was mainly due to a wave of work-from-home arrangements, social distancing and the affordability of rural markets. Second, new home construction has slowed to historic lows as the cost of building materials has risen. This is due to import restrictions and increased shipping costs. Third, mortgage interest rates were extremely low and foreclosures were almost non-existent. It is also a byproduct of the pandemic due to laws and regulations to make life easier for homeowners and buyers who lost their jobs and were struggling financially.

Many are nervous today about the economy and wondering about the future of real estate. The causes of the current conditions are listed above, let’s consider what it looks like in the future.

Working from home is on the decline and many have returned to their workplaces. However, some will not. This will lead to reduced travel from cities, but the suburbs will remain popular choices for those who can work from home, even in a hybrid arrangement.

As mentioned above, inventory shortages have been the biggest hurdle for homebuyers in the real estate market over the past two years. At the end of last year, inventory was down almost 27% compared to the same period in 2020. The drastic increase in real estate prices can be attributed to the decrease in inventory, coupled with the significant increase in demand during the pandemic era. It will stabilize. Stocks will rise and demand will fall to pre-pandemic levels – still good, but not crazy. Prices will stabilize as inventories increase and demand decreases.

Price stabilization is good for industry and communities. The problem is that prices are likely to stabilize at a level beyond the affordability of many, and the increased inventory will be for products that the majority of citizens cannot afford. Without an increase in family incomes and continued increases in interest rates, it is likely that under-construction product and developing neighborhoods will do little to address the affordability issues and housing shortages we are experiencing. currently.

J. David Chapman is Professor of Finance and Real Estate at the University of Central Oklahoma (jchapman7@uco.edu).