Why is demand on the decline?

May 24, 2019

Even as many real estate professionals would have expected demand to grow at the start of spring, it has actually taken a step back relative to last year. There may be numerous reasons for these concerns, and it would be wise for agents to do more to understand them.

Indeed, while the number of homes for sale at the beginning of spring was actually up - and had been rising for several months in a row - this came despite new listings actually taking a step back for most of early 2019, according to the latest data from Zillow. Experts believe that suggests homes which have been on the market are staying there for longer, largely as would-be buyers consider other options ahead of this spring/summer buying season.

The heart of the matter
Zillow Director of Economic Research Skylar Olsen noted that in 33 of the 35 largest markets nationwide, the percentage of homes for sale that have had to cut prices in recent months is on the rise. Often, this happens to higher-priced homes, which also tend to make up an outsized share of listings in the first place. But even for those valued in the bottom tier of property values price cuts are increasingly prevalent.

Through the end of the first quarter, the median home price was up 6.6% on an annual basis nationwide, still rising at significantly above historical averages but down from the high of 8% seen at the end of 2018. At the same time, mortgage rates slipped back to well below 4%, providing buyers with extra incentive to get back into the market sooner than later.

What could come next?
The way the market is moving these days may not be that hard to explain, however. With home prices still rising rapidly and even lower-priced starter homes getting a bit costly, young adults - who now make up by far the biggest share of the buyer's market overall - may not be able to afford many of the homes that are currently on the market, according to Reuters.

Many major home builders nationwide are now concentrating on churning out properties with a smaller footprint that can better meet price needs for first-time buyers. The general consensus seems to be that the old adage, "If you build it, they will come," applies to homes with prices well below the national median. The development firms that have focused on lower-cost communities say they've seen plenty of traffic even as other demand seems to be declining.

The more agents can do to help their first-timer clients understand the landscape of the market and how current affordability will affect them in the long run, the more likely they will be to facilitate real estate sales. After all, an informed client is a confident client, and when agents can engender that type of good sentiment, they may also gain more access to a growing network of interested young leads.