Homebuyers face ‘most competitive market in recorded history’

Rising real estate costs, demographics shifts, and low inventory have hamstrung homebuyers for years. But according to Danielle Hale, chief economist for Realtor.com, this spring buying season may bring buyer frustration to a boil.

“I think it’s fair to say this is the most competitive housing market we’ve seen in recorded history,” says Hale. “There’s record low inventory and strong interest from buyers in getting into the housing market. There are a lot of buyers, and not a lot of sellers.”

According to Hale and other economists and real estate industry observers, many factors have created this “imperfect storm” of high demand and low supply. Underbuilding had been a key factor, due to cost, labor shortages, and zoning and regulatory barriers to new construction.

“We’ve been paying the bill for underbuilding for some time, and every year, it gets worse,” she says. “We’re not only not keeping up, we’re falling further behind.”

This shortage—inventory has decreased for 42 consecutive months and is down 8.5 percent from last year, according to Realtor.com data—comes as demographic trends conspire to create even more competition.

Millennials are reaching prime homebuying age—in 2020, the greatest proportion of that generation will be turn 30—just as baby boomers are looking to downsize. This has created especially fierce competition for smaller homes, the type of starter homes that most first-time buyers desire.

This dynamic can be especially frustrating for young adults because they may be bidding for the same smaller home as someone from an older generation who can lean on the accumulated wealth of decades of homeownership.

Things are better further up the housing market. Hale says the high end of the housing market, above $450,000, has seen a 1 to 2 percent increase in inventory over the past year.

Realtors are seeing listings move off the market as “quickly as they’ve ever seen them,” Hale says. In March, homes stayed on the market an average of 63 days, a 7 percent drop year-over-year from 2017. Inventory is predicted to move even faster in the summer, as it usually does, and Hale expects many markets to set records.

She also expects aggressive tactics from buyers. A Realtor.com survey of potential buyers found that 40 percent plan to put more than 20 percent down, and 26 percent are willing to pay above asking price. A survey in early March by Toluna Research found that 40 percent of current buyers have been searching for more than seven months.

“Buyers right now are staying informed and signaling they’re serious, that’s how they’re staying competitive,” she says.

Recent mortgage data reinforces the difficulty in achieving affordable homeownership.

More borrowers with conventional home loans are spending a greater percentage of their income servicing these loans, according to data from CoreLogic. This December, more than 20 percent of borrowers were spending more than 45 percent of their income on mortgage payments each month, a percentage not seen since the buildup to the Great Recession.

Analysis from Arch Mortgage Insurance Company found that the size of a monthly mortgage payment needed to afford a home rose 5 percent in just the last three months, and may rise an additional 10 to 15 percent by year’s end. Mortgage rates hit 4.42 percent last week, according to Freddie Mac. That’s low compared to traditional rates, but an increase from the recent run or rock-bottom rates.