2 key factors are keeping homebuyers on the sidelines

SEATTLE—Two recent reports from real estate marketplace Zillow paint a somewhat bleak picture of the current housing market, which is often linked to future furniture purchases.

According to Zillow’s analysis, the housing deficit is growing in the United States, pushing up prices and making it difficult for first-time homebuyers to enter the market. During the pandemic in 2022, despite a building boom, the housing shortage grew to 4.5 million homes, up from 4.3 million the previous year.

Meanwhile, the number of families seeking homes in 2022 rose by 1.8 million, while just 1.4 million housing units were built. The bottom line is that when demand outpaces the supply of homes, prices go up.

“The simple fact is there are not enough homes in this country and that is pushing homeownership out of reach for too many families,” said Orphe Divounguy, senior economist at Zillow. “The affordability crisis extends to renters as well, with nearly half of renter households being cost burdened.

“Filling the housing shortage is the long-term answer to making housing more affordable,” said Divounguy, who added: “We are in a big hole and it is going to take more than the status quo to dig ourselves out of it.”

At the same time as housing is in short supply, Zillow’s analysis finds that the amount needed for a down payment by middle-class Americans has risen to more than $127,000, or 35.4% of the total, to keep payments on a typical $360,000 home affordable.

Just five years ago, when interest rates were around 4% and homes were worth about 50% less, the typical U.S. home would have been affordable to a median-income household with no down payment.

“Down payments have always been important,” said Skylar Olsen, chief economist, “but even more so today. With so few [homes] available, buyers may have to wait even longer for the right home to hit the market, especially now that buyers can afford less. Mortgage rate movements during that time could make the difference between affording that home and not.”

To save the estimated $127,000 down payment, a household making the median income would need on average about 12 years—based on 10% savings per month with a 4% annual return—to achieve their goal. Zillow’s research shows that given that timeline, 43% of home buyers last year used a gift from family or friends for at least part of their down payment.

Zillow points to two factors that could help with these problems: for the shortage, reform of zoning rules to allow for more density and thus more homes being built; and to deal with down payments, directing potential home buyers to one of the more than 2,300 down payment assistance programs in the country.

See also:

  • What are potential homebuyers looking for in a new home? Zillow shares search results
  • In a difficult housing market, credit providers see demand rise for furniture financing

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