There is no denying that housing affordability has dwindled considerably over the past few years, mainly for first-time and lower-income buyers. An American dream that many wish to achieve has seemingly become more and more unobtainable. Or has it?
Several micro and macro factors have played roles in what drove home prices up, but now many cities are starting to feel the effects of a much-needed correction. Here is my “hot take” on housing affordability in today’s changing market.
The battle of supply vs. demand was at the core of the uptick in values. Any time you have less of “something,” but many people want it, the price will increase naturally because that very thing has become more valuable.
Coupled with a pandemic that significantly threw off the balance of inventory levels that generally rise at various times of the year, inventory that hit the market in many cities went under contract in days, if not hours, for FOMO (Fear Of Missing Out) prices.
In the midwest (specifically Kansas City), which would be considered a secondary market in comparison to larger cities like Los Angeles, New York and Miami, housing generally provides a lot of bang for the buck depending on location. Having the good fortune of working both the higher-end and entry price points for Kansas City, I’ve experienced both sides of the spectrum.
It was not uncommon to see 15+ offers on a $275,000 property, which would ultimately sell for $50,000 over the original asking price. The activity around offers of affordable homes was suddenly mimicking the higher price points, and the demand was intense.
Just as it was apparent, what was once expected at certain price points in the luxury market would result in a lot more coming out of my buyer’s pockets. A basic amenity such as a three-car garage at the $1 million to $1.1 million price point became a unicorn, and if it did appear, everyone was vying for it, which is still happening even today.
As we enter into the third quarter of the 2022 season, it is apparent that the Fed’s moves to cool down the market are working. Longer days on the market, price adjustments being made and fewer multiple offer situations noted. That said, inventory levels are still lower than where they need to be for a balanced market, which is why home values continue to rise overall.
So what does this mean for housing affordability moving forward? According to Bloomberg, many larger markets will experience some version of a correction, resulting in more price adjustments and longer active/for sale times than recently seen.
For sellers, who have been spoiled over the past few years with the cards in their favor, what may seem like a steep decline in values is actually just a shift to a more normalized marketplace in which homebuyers should have more options as long as inventory continues to grow. It’s anticipated that by the end of 2022, headed into 2023, the market should soften significantly, but, as with most things, only time can tell.
Anthony West is a real estate agent, the founder of The Luxury Life KC at Moffitt Realty, and an entrepreneur in Kansas City.