5 Factors That
Reveal Where the Real Estate Market Is Really Headed
It’s the old supply-and-demand predicament:
Home sales in the U.S. continue at a torrid pace, but the availability of
listings remains limited. 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%. But the association anticipates the average rate
climbing to 3.5% at the end of 2021 and 4.2% 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 likely 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% on a year-over-year basis.7
In the Baltimore Metro area, the median sold price was $355,000, up 14.9% year
over year. 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,
high prices are pushing homeownership out of reach for a growing number of
first-time buyers. In a recent CoreLogic survey, 82% 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%
increase over the 4 million homes sold in May 2020.10 In the Baltimore
Metro area, June saw 5,146 homes sold, up 30.6% year over year.
However, home sales saw a 0.9% dip in May 2021
compared with the previous month, the National Association of Realtors says.
That was the fourth straight month for a national 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 June in Baltimore
Metro, however, showed an increase in home sales of 19.2% from the previous
month, so our local market is still very active.
Fannie Mae expects total home sales to tick up
slightly in the fourth quarter and finish the year up 3.8% over last year. They
also forecast a slight decline of 2.2% 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.
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% from the same time last year.10 This translates to a
2.5-month supply of homes, which is well below the 6 months of inventory
typically seen in a balanced market.10,12 And Baltimore Metro, as of
June, was sitting at a challenging 0.9 months of supply.
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
CONSTRUCTION
OF SINGLE-FAMILY HOMES SEES SLIGHT UPTICK
Frustrated buyers may soon find some relief,
however, from an increase in new construction. Economists forecast that 1.1
million new houses will be started in 2021, compared with a predicted 940,000
units just six months ago, with 1.2 million new starts predicted for 2022 and
2023, according to the Urban Land Institute.16
Amid the rise in home construction, builders
are coping with rising costs for materials. In April, the National Association
of Home Builders estimated that a surge in lumber prices over the previous year
had led to $35,872 being tacked onto the cost of an average new single-family
home.17
“Shortages of materials and labor have
builders struggling to increase production of new homes, though the demand
remains strong,” Robert Frick, corporate economist at Navy Federal Credit
Union, told the Reuters news service. “Potential homebuyers should expect tight
inventories and rising prices for both new and existing homes for the
foreseeable future.”18
Builders (and buyers) did receive some good
news in June, though: Lumber prices are coming down—although likely to remain
above pre-pandemic levels for the foreseeable future.19
What does it mean for you?
Given the issues affecting the new-home
market, it may make sense to widen your home search to include both new and
existing homes. Your brand-new dream home may not be available, but you might
be able to find an existing home that lives up to your vision. Keep in mind
that we can help you find either a new or existing home and can advocate for
you to ensure you get the best deal possible.
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. We 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.
Sources:
1. The Atlantic -
https://www.theatlantic.com/ideas/archive/2021/05/us-housing-market-records/619029/
2. Wall Street Journal - https://www.wsj.com/articles/u-s-housing-market-needs-5-5-million-more-units-says-new-report-11623835800
3. Time -
https://time.com/nextadvisor/mortgages/mortgage-predictions-2021/
4. Bankrate -
https://www.bankrate.com/banking/federal-reserve/fomc-meeting-recap-june-2021/
5. Mortgage Bankers Association -
https://www.mba.org/news-research-and-resources/research-and-economics/forecasts-and-commentary/mortgage-finance-forecast-archives
6. Associated Press News -
https://apnews.com/press-release/globe-newswire/mortgages-mortgage-rates-business-0fc0360d0f4af0c988504385fa2794c3
7. Realtor.com -
https://www.realtor.com/research/june-2021-data/
8. Home Buying Institute -
http://www.homebuyinginstitute.com/news/home-prices-will-keep-rising-through-2021/
9. DS News -
https://dsnews.com/daily-dose/07-06-2021/record-high-home-prices-intensify-affordability-challenges
10. National Association of
Realtors -
https://www.nar.realtor/newsroom/existing-home-sales-experience-slight-skid-of-0-9-in-may
11. Fannie Mae -
https://www.fanniemae.com/media/40561/display
12. Real Estate Center at Texas
A&M University -
https://assets.recenter.tamu.edu/documents/articles/2046-7.pdf
13. Reuters -
https://www.reuters.com/world/us/us-housing-starts-rise-less-than-expected-may-building-permits-fall-2021-06-16/
14. National Association of Realtors
- https://www.nar.realtor/research-and-statistics/research-reports/realtors-confidence-index
15. Realtor magazine -
https://magazine.realtor/daily-news/2021/05/17/report-half-of-homes-sell-above-list-price
16. Urban Land Magazine - https://urbanland.uli.org/capital-markets/uli-forecast-sees-increased-improvement-in-outlook-for-u-s-economy-2/
17. National Association of Home
Builders - https://eyeonhousing.org/2021/04/higher-lumber-costs-add-more-than-35k-to-new-home-prices-119-to-monthly-rent/
18. Reuters - https://www.reuters.com/world/us/us-housing-starts-rise-less-than-expected-may-building-permits-fall-2021-06-16/
