Statistics show that we are still in a seller’s market. There are more buyers looking for a home than there are homes up for sale. A recent release from the U.S. Census Bureau shows that this is not the case for new construction homes. The sale of new homes fell In June 2021 by 6.6% from June 2020 and 19.4% from May 2021. This is a major indicator that the market is starting to show serious signs of a shift. The figures hold true by region as well. The sale of new homes in Northern Virginia have fallen.
This is a significant sign that many potential home buyers and real estate investors are watching. It suggests what many have been saying. The real estate market is shifting. The market will move from seller’s market in favor of buyers. It will definitely be worth watching over the next few months. The question is. What does this mean for the real estate market in northern Virginia?
Why Are We Watching New Home Sales?
New home (residential) sales has been a historical leading economic indicator. This is because it takes into account not only the demand of buyers but also changes in the economy such as household income, unemployment rates, and interest rates. Investors and developers watch the market before deciding to start building a new development. They also do extensive market analysis on the demographics of their buyers and pay close attention to their income, family size, and employment status.
So when new home sales fall suddenly (as it did from May to June 2021), it says the housing market is slowing down. This will affect future plans in terms of how many homes will be built in the future and the prices of the homes that will be in demand. Usually, whatever happens in the realm of new home construction is an indicator of what will happen in the general real estate market months before.
Why are New Homes Sales in Northern Virginia Down?
There are several theories as to why the sale of new homes are down. One is that the builders don’t have enough supplies (due to the pandemic) to complete home sales and meet the demand of the buyers. During the pandemic, building supplies such as lumber and appliances were in high demand and eventually were hard to come by. Due to the demand, prices increased across the board. Now, it seems, the supply chain is keeping up with the demand and we are already seeing steady decreases in prices.
The second idea is that buyers can no longer afford the increasingly high home prices of new construction homes, and homes in general. While interest rates remain relatively low, banks (possibly foreseeing a a market crash) are becoming more strict with its borrowing guidelines. This means buyers need better credit scores, more down payments and a smaller debt-to-income ratio.
What does this mean for homebuyers in Northern Virginia?
If the market shifts, homebuyers will notice: (1) bidding wars will start to lessen, (2) interest rates will remain low but steadily increase, and (3) banks will be more diligent in approving mortgage loans. This is great news for homebuyers who have saved for down payments and have good credit scores. Banks have even started to compete on who can offer the best interest rate so be sure to shop around.
What does this mean for home sellers in Northern Virginia?
If the market shifts, home sellers can still benefit from the seller’s market. As mentioned earlier, this trend will have to occur a few more months to be more certain of this trend. Homes that are in excellent condition will also still be in high demand. Sellers still have the advantage in the real estate market, for now.
New data suggests the real estate market is shifting from a seller’s to a buyer’s market. This trend will take several months to unfold but is worth taking note of. Along with the health of the housing market, other indicators such as mortgage interest rates and employment are equally important to watch when preparing for the future.
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