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Newly Built Homes Face Affordability Issues, According to Analysts

Home sales are down compared to the same time in 2020, according to a report from the U.S. Census Bureau, but prices are on the rise everywhere. This is due to a lack of available inventory compared to existing demand. However, at least one analyst believes that the current situation will not last, and as more newly built homes flood the market, it is likely to reach an affordability tipping point that will cause prices to drop.

The State of the Current Housing Market

    Right now, home sales are down by about 14% compared to the same period last year. This drop in sales is largely attributed to a lack of available homes for sale, which is due to two major issues: first, a lack of new homes being built as a result of the pandemic, and second, fewer people putting their homes on the market for sale. This has meant that any homes that do go on the market tend to sell for significantly higher than they might if there were more homes available.

An Influx of Newly Built Homes

    Unsurprisingly, there are plenty of people who want to take advantage of the high prices on the housing market. With many of the supply line issues caused by the pandemic having been worked out, newly built homes are beginning to enter onto the market. This is happening at a relatively slow rate, however, with inventory issues remaining a key driver for increasing housing prices. At this point, the amount of homes being built has not caught up with the number of people seeking new homes.

A Potential Affordability Crisis in the Making

    Of course, while these inflated prices are a boon for real estate sellers, they have been far less favorable for potential buyers. With housing prices consistently rising over the past few months, at least one analyst is concerned that houses on the market will simply become unaffordable for prospective homeowners. “A hefty correction appears to be due, but the rapid increases in existing home prices… is putting extra upward pressure on new home prices,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics.

A Possible Future Correction?

    With affordability a concern and more houses entering onto the market, it is clear that the upward trend cannot last forever. Either an influx of newly built homes will begin to drive down prices, or sales will begin to taper off due to average buyers no longer being able to afford what is on the market. Either way, it seems as though a correction in the housing market is due to occur at some point in the near future.

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