Housing Market Update
The market continues to see very high demand, limited inventory, and homebuyer competition that keeps pushing home prices to record highs.
The limited inventory is influencing the home sales data. For the 3rd straight month, sources have seen a decline in existing home sales. According to Zillow, there were 2.7% fewer home sales in April than in March 2021 alone. Supply shortages are also one of the contributing factors to this limited inventory. For example, builders are grappling with lumber prices that are 7 times higher than they were in April of last year. Despite these challenges, confidence amongst builders remains high. Even still, regardless of builder sentiment, these restraints and shortages will likely continue to slow the momentum of a much-needed inventory increase, keeping supply low and difficult to keep up with the high demand.
There are a few factors that may ease the upward trend of home prices. COVID forbearance agreements are starting to end for homeowners with many of the deadlines extended just to June 30, 2021. What will this mean? The protections that mortgage forbearance offered for those suffering the most from financial hardships during the pandemic will be lifted and may ultimately lead to a multitude of foreclosures and home evictions. This will most affect borrowers with low credit scores and lower incomes. According to Zillow, 30% of mortgage borrowers with a credit score less than 620 have participated in forbearance at some point since the pandemic began.
One other factor that could hold sales volume in the future is the high housing prices. Reports show high home prices are wearing heavily on homebuyer confidence. Seller confidence is gradually growing too which will help balance out the market and make it easier on buyers once inventory is back up. Now more than ever it is important to keep mailing.
Existing Home Sales & Prices
Some experts are coining the current state of the housing market as the “Great Housing Supply Crash”. It is important to note, that they are saying this crash is not solely due to the pandemic and it was a long time coming. Here is an explanation of why.
Prior to the pandemic, there was already a housing supply shortage. So although COVID certainly contributed to the state the housing market is in, it is not the reason why inventory is currently so low. According to the chief economist of First American, Mark Fleming, “Inventory turnover — the supply of homes for sale nationwide as a percentage of occupied residential inventory — was low even prior to the pandemic, but dropped precipitously last spring.” One could assume the pandemic simply fueled the fire that was already in motion with inventory shortages.
This lack of inventory, in turn, has created a snowball effect for the market. First, we’ve seen a gradual decline in existing home sales (see section above for stats). There is high buyer demand - in April houses were on the market for an average of 17 days,88% of those homes were on the market for less than a month. And finally, prices are beating record highs. The median existing-home price in April was $341,600, a 19.1% increase from the year before. CNBC reports that as of March 2020, the housing market has seen 10 straight months of accelerating home prices.
But when will this snowball lose momentum or “reach the bottom of the mountain”? Experts are still not certain, but there are figures and trends hinting at a gradual rise in inventory. To start, unsold inventory is already slowly increasing at a 2.4-month supply in April, from a 2.1 month supply in March.
Buyer sentiment is decreasing which will help keep them at bay, hopefully preventing the inventory from depleting anymore than it already has. According to Realtor.com, there has been a decline in existing-home sales for the 3rd straight month in a row. The decline in single-family home sales also saw a 3.2% drop.
Changes in the state of the country related to the pandemic will also likely play a huge role in a small inventory rebound. As more people become vaccinated and COVID restrictions lift, home sellers will likely begin to feel more comfortable listing their homes. Finally, there will be an inevitable decline in the number of homes in forbearance, leading to more homes on the market.
So what will need to happen to rebound from this Great Housing Crash? Builders will need to compensate for the years’ worth of underbuilding. Even if home building is accelerated at higher rates, experts are saying it will take years to catch up. Seller optimism will also need to rise. Once we start to see supply begin to rise to a more balanced rate, home prices will likely decrease, demand will cool, and buyer competition will ease.
Experts at Redfin cite that both the pandemic and the ability to work from home have contributed to migration patterns over the past year. In Q1 2021 the 31.5% share of homebuyers searching for a home outside of their home metro areas was the highest it has been for years (dating back to Q1 of 2019). April of this year there was a slowdown due to the assumption that the vaccine rollout and employees returning to offices are keeping people put, however, there won’t be a clearer picture of the ensuing trends until the end of Q2 this year.
As far as the places people are moving to, the data from Redfin shows sunny inland metros and Florida are fan favorites. Phoenix, Las Vegas, Sacramento, Austin, and Atlanta are the top contenders due to houses being less expensive and more spacious. Redfin users also cite reasons such as preparing for retirement or growing a family as well. The places Redfin is seeing the most outflow from are New York, San Francisco, Los Angeles, Washington, D.C., and Denver. The outflow is mostly due to these areas being big expensive job centers.
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Categories: Real Estate News