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Real estate agents shouldn’t take apparent tailwinds in the market and positive economic trends for granted, as there are a number of looming headwinds to contend with that could get worse, according to Jordan Levine, an economist with the California Association of Realtors.
Agents need to work harder and longer to get a client into a home. Surging prices paired with inflation are squeezing buyers out of the market.
“For me I think the bottom line is that I have a lot of optimism when it comes to the broader economic data,” said Levine, who is also the group’s vice president. “But there are increasing headwinds for the housing market out there.”
Levine delivered a mixed forecast during a recent Connect Now virtual session, often delivering a touch of good news followed by a potential headwind.
There are signs of market normalization, he said, but the flexibility provided by remote work has changed dynamics and may not have fully materialized.
The broader economy is showing signs of continued improvement and the housing market remains an economic bright spot, yet inflation and rising interest rates are beginning to squeeze some buyers out of the market.
“The macro environment looks so good you really want to make sure that you don’t take the housing market for granted,” Levine said, “because there are some obstacles out there for our consumers, which is going to translate into obstacles for us as real estate professionals.”
Fewer homes are selling for over asking in California, Levine said, and interest is picking up among investors and international buyers. Interest in larger homes seems to have waned, as the average size of purchases has fallen back to near what it was before the pandemic.
The biggest headwind remains a lack of inventory not satisfying a huge buyer pool, which is driving up prices. A historic shortfall of new construction could also contribute to a longer-term lack of supply.
“A lot of areas are grappling with this lack of supply butting right up against this incredible demand for housing,” Levine said. “Sometimes if you let supply problems go on too long … those supply problems can eventually metastasize into problems for buyer demand.”
The U.S. saw more than 6 million homes sold in 2021, the highest number in 15 years. But inventory is near record lows, so it still wasn’t enough to meet demand.
“The increase, the uptick in home sales, only does one thing: help erode the amount of homes that are remaining on the market for sale for the remaining buyers out there,” he added.