At the start of 2022 (Q1), we talked about the feeling of knowing things were too good to be true. The feeling of the wind in your hair as you drive “fast” down the road, the feeling of knowing in your mind that everything could change with the smallest bend in the road. Well, the housing market (our industry!) might be close to that bend … we are teetering on the edge … the future most certainly holds change.
The most startling point of the second quarter of 2022 is the lack of pending single family homes. Currently, there are 1,751 pending single family homes in the Des Moines metropolitan area. Just a year ago, there were one thousand more pending homes; 2,777 to be exact. As interest rates continue to rise, the erosion of affordable housing is going to be at the forefront of the housing market for the foreseeable future.
Bottom line: our world is not stable. The world economy is facing aggressive inflation, stock-market turmoil and a grueling war. Add to all that the massive unraveling of a housing boom with interest rates at a once-in-a-lifetime anomaly, the average home buyer or seller is not going to know what to do.
Looking strictly at the numbers, Q2 has given us more inventory to work with. Overall, this year there were 364 more active single family homes than last year (1,462 vs 1,098). Active new construction increased with 223 more homes available (780 vs 557). Together, active single family homes for Q2 this year equated to 1.6 months supply of total inventory. Industry deems a six month supply is needed for a balanced market so one can see, while increasing, we are still very much behind.
To further illustrate this point, let’s look at resales. In Q1 of 2022, only 289 sales were resales. In Q2, 682 sales were resales. This is an increase of 236%! Since February, the additional inventory that is available is almost entirely resale homes. What is causing all these sellers to list their homes? One can only speculate that it is a conscious decision to capitalize on the current -and extremely desirable- inflation and appreciation rates. Almost every seller is selling above their asking price. It could also be that the sellers, who now are the buyers, want to lock in interest rates before their inevitable rising. Short term rates are cheaper than long term rates.
This blessing of low interest rates has allowed the housing industry to experience strong demand for the past several years. Quite simply, these low interest rates have allowed buyers to afford homes even as our building costs escalated. Our industry knows this is not a sustainable model for the economy and we must start planning for change. Case in point, the current average list price for a new construction home is $452,000. This is a 22% increase over 2021’s new construction price! Year over year, this is not something that can be expected to continue.
Looking further into year over year numbers, the total houses sold in the last twelve months also illustrates this point. 10,793 homes have been sold today since July 2021. From July 2020 to July 2021, 11,205 homes were sold. We are down 400 total single family homes (year over year). While this number is not shocking in itself, one cannot help but assume it is an indicator of the trends to come. Building permit numbers and land development will likely slow but wages are inflating along with the cost of commodities. Will home prices fall? Only time will tell.
As the second quarter of 2022 wraps up, our car continues to hurtle down the road yet we still don’t truly know what lies ahead. Economics will always be in the driver’s seat and the world will always be in flux. That said, the housing market appears to be returning to a more stable environment and we remain positive with our future outlook.