5 Factors That Reveal Where The Real Estate Market Is Really Headed
THE OLD SUPPLY-AND-DEMAND PREDICAMENT
Home sales in the U.S. continue at a torrid pace, but the availability of listings remains limited. Currently, there is less than a two-month supply of homes for sale on Santa Barbara’s south coast, which means, if no others houses come on the market in the next two months, the inventory for homes offered for sale would be ZERO! Buoyed by historically low mortgage rates, buyers keep shopping for homes, reducing the available inventory and sparking a rise in home prices across the country.
News website The Atlantic summarized the sizzling home market this way:
“Pick a housing statistic at random, and it’s probably setting an all-time record. Home prices: record high. Inventory: record low. Percentage of homes selling above asking price: record high. Average time on market: record low.”1
Meanwhile, homebuilders are contending with an increase in material costs and a shortage of labor. These issues come amid an ongoing shortage of housing. A study commissioned by the National Association of Realtors found the U.S. is coping with a deficit of about 2 million single-family homes and about 3.5 million other housing units.2
So, what can we expect from U.S. real estate? Here are five factors that illustrate where the housing market is today and is likely heading tomorrow.
ROCK-BOTTOM MORTGAGE RATES TO GRADUALLY RISE
Low interest rates continue to fuel demand from homebuyers. Some experts believe mortgage rates will creep up later this year, but they expect rates to remain near historic lows.3 However, the Federal Reserve signaled in mid-June that it may institute two interest rate hikes as soon as 2023, which could then trigger a more substantial uptick in mortgage rates.4
In June, the Mortgage Bankers Association reported that 2020 closed with the average rate for a 30-year, fixed-rate mortgage sitting at 2.8 percent. But the association anticipates the average rate climbing to 3.5 percent at the end of 2021 and 4.2 percent by the end of 2022.5
“As the economy progresses and inflation remains elevated, we expect that rates will continue to gradually rise in the second half of the year,” said Sam Khater, chief economist at Freddie Mac.6
What does it mean for you?
You’ve heard the old saying about “striking while the iron is hot.” Well, that phrase applies to the current environment for mortgage rates. It’s impossible to predict with certainty when mortgage rates will rise or fall. So, when mortgage rates are at or near historic lows (as they are today), you should seriously consider taking advantage of those rates to borrow money for a home purchase or to refinance your existing mortgage.
HOME PRICES EXPECTED TO KEEP CLIMBING
Low mortgage rates are sparking interest among homebuyers, but some are running into affordability issues.
In June, the national median list price for a home reached an all-time high of $385,000, up 12.7 percent on a year-over-year basis.7 In south Santa Barbara County, the aggregate median home price so far this year of $1,980,500 is 42 percent higher than in 2020. And according to the Home Buying Institute, various reports and forecasts indicate home prices will keep climbing throughout 2021 and into 2022.8
While this may be welcome news for homeowners, soaring prices are pushing homeownership out of reach for a growing number of first-time buyers. In a recent CoreLogic survey, 82 percent of respondents listed housing affordability as a key problem.9
“Younger and first-time buyers, including younger millennials, are faced with the challenge of having sufficient savings for a down payment, closing costs and cash reserves,” said Frank Martell, President and CEO of CoreLogic. “As we look to the balance of 2021, we expect price rises to continue which could very well push prospective buyers out of the market in many areas and slow home price growth over the next year.”9
What does it mean for you?
If you’re a buyer waiting on the sidelines for prices to drop, you may want to reconsider. While the pace of appreciation should taper off, home prices are expected to continue climbing. And rising mortgage rates will only make a home purchase more expensive.
SINGLE-FAMILY HOME SALES REMAIN ROBUST
While record-high prices are sidelining some buyers, the impressive pace of single-family home sales marches on.
Single-family home sales are down from their peak in October 2020 yet are still above the overall level last year. In May 2021, 5.8 million existing single-family homes were sold in the U.S. That’s a 45 percent increase over the 4 million homes sold in May 2020.10 On the South Coast, sales are up by a whopping 49 percent. However, the National Association of Realtors says home sales saw a 0.9 percent dip in May this year compared with the previous month. That was the fourth straight month for a decline in home sales. The number of home sales has slid recently because of rising prices coupled with a shortage of available homes amid intense demand.10
Fannie Mae expects total U.S. home sales to tick up slightly in the fourth quarter and finish the year up 3.8 percent over last year. They also forecast a slight decline of 2.2 percent in sales volume in 2022.11
What does it mean for you?
The market for single-family home sales remains quite active. As a result, if you’re a homeowner, you may want to ponder whether to sell now, even if you hadn’t necessarily been thinking about doing so. With demand high and inventory low, your home could fetch an eye-popping price. Click HERE to discover what your home is worth.
LACK OF INVENTORY STILL CONSTRAINS THE HOME MARKET
According to the National Association of Realtors, in May there were 1.23 million previously owned homes on the market, down 20.6 percent from the same time last year.10 This translates to a 2.5-month supply of homes, which is well below the 5 to 6 months of inventory typically seen in a balanced market.10,12
According to the Realtors group, this lack of inventory translates into tougher searches for buyers and contributes to a rise in prices.10
“Demand for bigger and more expensive accommodations amid the COVID-19 pandemic, which has left millions of Americans still working from home, is driving a housing market boom. The inventory of previously owned homes is near record lows,” according to Reuters.13
What does it mean for you?
If you’re thinking of selling your home, now may be the right time to do it. Across the country, it’s a seller’s market, meaning demand is outpacing supply. That supply-and-demand imbalance puts sellers in a great position to sell their homes at a premium price. The May 2021 Realtors Confidence Index from the National Association of Realtors found the average home that was sold attracted five offers, and the association says nearly half of homes are selling above list price.14,15 Last month (July), South Coast homes sold for an average of 2+ percent more than their asking price.
ARE YOU THINKING OF BUYING OR SELLING?
If you’re in the market for a home, you’re ready to sell your house or you’ve simply been wondering whether you should sell, you definitely could benefit from an expert to help you navigate the sizzling hot real estate market. Let’s set up a free consultation to discuss your situation. I can help you figure out your options and come up with a plan to capitalize on the value of your current property or to find your ideal next home. Click HERE to contact me.
Read other articles by Mark Hubert HERE.
Sources:
- The Atlantic –
https://www.theatlantic.com/ideas/archive/2021/05/us-housing-market-records/619029/ - Wall Street Journal – https://www.wsj.com/articles/u-s-housing-market-needs-5-5-million-more-units-says-new-report-11623835800
- Time –
https://time.com/nextadvisor/mortgages/mortgage-predictions-2021/ - Bankrate –
https://www.bankrate.com/banking/federal-reserve/fomc-meeting-recap-june-2021/ - Mortgage Bankers Association – https://www.mba.org/news-research-and-resources/research-and-economics/forecasts-and-commentary/mortgage-finance-forecast-archives
- Associated Press News –
https://apnews.com/press-release/globe-newswire/mortgages-mortgage-rates-business-0fc0360d0f4af0c988504385fa2794c3 - com –
https://www.realtor.com/research/june-2021-data/ - Home Buying Institute –
http://www.homebuyinginstitute.com/news/home-prices-will-keep-rising-through-2021/ - DS News –
https://dsnews.com/daily-dose/07-06-2021/record-high-home-prices-intensify-affordability-challenges - National Association of Realtors –
https://www.nar.realtor/newsroom/existing-home-sales-experience-slight-skid-of-0-9-in-may - Fannie Mae –
https://www.fanniemae.com/media/40561/display - Real Estate Center at Texas A&M University –
https://assets.recenter.tamu.edu/documents/articles/2046-7.pdf - Reuters –
https://www.reuters.com/world/us/us-housing-starts-rise-less-than-expected-may-building-permits-fall-2021-06-16/ - National Association of Realtors – https://www.nar.realtor/research-and-statistics/research-reports/realtors-confidence-index
- Realtor magazine –
https://magazine.realtor/daily-news/2021/05/17/report-half-of-homes-sell-above-list-price
