- After months of record price growth, Americans are growing sick of the housing market.
- Buyer sentiments sit at record lows, spending is down, and builders are bracing for a pullback in demand.
- Here are 5 charts from UBS economists showing Americans stepping away from the housing market.
- See more stories on Insider’s business page.
Months of record-breaking prices. A historic imbalance between buyers and sellers. Most homes selling in less than one month.
To say homebuying in 2021 has been difficult is a gross understatement. And it seems that, finally, buyers have had enough.
Two significant developments stand to cool the housing market from its current fervor, economists at UBS said in a Monday note. The mass exodus from cities to rural and exurban neighborhoods is starting to reverse as companies call employees back to their offices. The switch-up should ease demand for houses in the non-urban areas that surged in popularity throughout the pandemic, the UBS team led by Ajit Agrawal said.
And although prices continue to shoot higher, demand is wavering. Total spending has fallen from its recent highs, and the number of houses available has rebounded slightly. Sentiments toward homebuying have also soured, signaling demand will wane further.
Here are 5 charts detailing the pullback in Americans’ homebuying appetites.
To start, total spending on new homes plummeted in recent months and now sits at the same levels seen just before the COVID crisis. While buyers are spending more on homes, the decline in spending implies fewer sales are taking place.
Spending on, and sales of, existing homes “has not yet been as great” as that for new homes, UBS said. But existing-home data lags that of new homes since it tracks contract closings instead of initial signings, the bank added.
2. Sales-in-progress are weakening, too
Pending home sales tumbled in June and now sit near their historical average. Pending sales are among the most reliable forward indicators of housing activity, meaning the latest decline will likely translate to weaker sales later in the summer.
Experts aren’t expecting a bounceback in July, UBS said. Consensus estimates call for another decline, and real estate marketplace Redfin holds a similar outlook.
“Home sellers are increasingly having to lower their expectations,” Daryl Fairweather, chief economist at Redfin, said in a July report on pending sales. “Many homebuyers have turned to the rental market amid such high home prices, but now with rental prices growing, I expect many will return to the housing market by spring of next year.”
3. Buyers are growing more pessimistic
Perhaps the clearest sign of buyers’ frustration comes from Fannie Mae’s sentiment data. The share of surveyed Americans saying it was a good time to buy slid to another record low in June, while the share of those believing it’s a good time to sell reached an all-time high.
High home prices were the predominant reason for the massive gap, Doug Duncan, Fannie Mae’s chief economist, said in the July report. Renters looking to buy homes in the next few years saw an even larger decline in homebuying sentiment, reflecting the higher barrier-to-entry faced by first-time buyers.
“It’s likely that affordability concerns are more greatly affecting those who aspire to be first-time homeowners than other consumer segments who have already established homeownership,” Duncan said.
4. Builders are stepping back
It’s not just buyers taking a breather. Builders have also retraced some of their recent jump in construction, most likely due to early indicators of weakening demand. Single-family housing starts, while choppy, fell through the end of last year and 2021.
Permits — a more forward-looking indicator of homebuilding activity — staged a steeper decline this year. Taken together, it seems builders are hoping to prop up demand and avoid flooding the market with fresh supply.
5. Building costs are reversing
Even the marketplaces that fuel homebuilding are reverting to more normal levels. Lumber costs, which skyrocketed in the spring alongside home prices, have quickly reversed their gains and now sit at their lowest level since late last year.
Demand, then, is weakening throughout the market. From homebuyers to builders to suppliers, everybody is growing tired of the housing sector’s melt-up.