New, Existing Home Supplies Diverge

Newly built homes account for a small share of the home sales market, generally around 10%. But builders have grown that percentage this year and will make further gains in 2024. Even with higher mortgage rates, new-home sales are rising because builders are bringing more inventory onto the market than they did before the COVID-19 pandemic. By contrast, the market for existing homes is gummed up by lack of inventory, which is about half of what it was in 2019. After two consecutive years of near-20% declines, existing-home sales will recover next year with a baseline gain of 10% to 15%. If, somehow, more inventory bursts forth, a surprisingly positive gain of 25% to 30% is a distinct possibility. Lack of supply is behind ongoing multiple-offer scenarios on moderate- to mid-priced homes and attests to the importance of inventory in getting the market moving.

Builders can add inventory by constructing homes. Boosting existing- home inventory requires owners to give up the low mortgage rates they secured a couple of years ago. Rates in the 2.5% to 3% range may be too good for some owners to surrender. But consider the life-changing events that took place during the past two years: 3 million marriages, 1.5 million divorces, 7 million births, 4 million deaths, and 7 million Americans reaching 65. Staying put isn’t an option for many growing families or divorcing couples. The dream of retiring to a home requiring less maintenance can’t be postponed indefinitely. People need and want to move. Even a small fall in mortgage rates could be the enticement.

In the past two years, we’ve seen 4 million net new jobs, along with 50 million job switches. Many office workers would like a home that accommodates new hybrid work policies.

Pent-up supplies have been steadily building. Combine that with the usual demand response from lower rates, and the home sales market will become more dynamic.

Virtual Purchases Persist

Although sales were down slightly in August, NAR data indicates buyer motivation remains strong. Market pace and technology spurred 7% of buyers in August to purchase a home based only on a virtual tour, showing or open house, virtually unchanged from one year ago.