If you are waiting for the “downturn” or hoping that home prices will cool as the world returns to “normal” after the COVID-19 years before you acquire property, don’t hold your breath. You could be putting your real estate investing on hold for at least another two years. Real estate data behemoth Zillow recently warned home inventory “won’t return” until 2024, at the earliest, and it will be closer to 2025, according to many analysts.
Zillow’s Home Price Expectations Survey is conducted by interviewing experts in housing about relevant topics in real estate. The most recent survey results indicate that nearly four in every five experts expect monthly inventory levels “should return to an average of 1.5 million houses for sale by the end of 2024,” but outliers say it could take longer. At present, there are fewer than 1 million total homes for sale nationwide, a number that has been falling steadily since early in the COVID-19 pandemic.
“This supply deficit is going to take a long time to fill,” said Zillow senior economist Jeff Tucker. He added, “Inventory and mortgage rates will determine how far and fast home prices will rise this year and beyond.”
One early indicator that the housing market could be leveling off (most investors and analysts agree – for once – that the market is not heading for a downturn but just moving back toward more conventional performance) is the re-entry of first-time homebuyers into the market. In 2021, only about one-third of all home purchases were first-time buyers. This was due mainly to a devastating lack of affordability that swept through nearly all housing markets nationwide. By comparison, in 2019 nearly half of all home purchases were by first-time buyers. Although about half of the respondents to Zillow’s survey said they expect to return to 2019 levels by 2025, one-fifth of respondents said that the first-time buyer population would not return in force to the market until 2030 when Gen Z hits “prime home-buying age.”
What does all of this mean for real estate investors? Well, it means you probably need to start getting creative unless you want to be sidelined for the next 2-10 years. First-time buyers priced out of a market are not necessarily going to leave that market; they are also quite likely to look around for a home to rent while they wait for better market conditions. As an investor, use your connections and your creativity to acquire properties for your portfolio now rather than waiting along with everyone else for the market to start working for you.