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The housing market is ever-evolving as the U.S. slowly unshutters its doors with the rollout of the vaccine. Some trends have stayed the same since we reported last month, but some have changed. This past month home sales have shifted away from the previous trends and they have begun to fall. However, experts are still anticipating the summer market will be hot with mortgage rates still low, the roll-out of the vaccine tied to job growth, and rebounding consumer confidence. Finally, due to the supply and demand of house inventory, the supply being limited and demand being very high, the market has seen average home sale price records being broken left and right. Let’s dive into it.
Why Home Sales Have Fallen Recently
One of the largest reasons home sales have declined recently was due to the inclement winter weather that swept most of the country in February, but two other reasons contributed to this sales decline also. The first being the persistent limited listed home inventory available to buyers. This trend is not new to what we have seen over the past quarter. However, it is the lowest we have seen for a while. Barrons’s reports that the inventory of homes for sale in February 2021 compared to 2020 was nearly 30% lower.
Another key factor that feeds into the lower home sales trend is the rising construction costs due to building material pricing rising. For example, lumber prices were up 59% year-over-year in February according to some measures, the largest annual jump since the 1940s. This however is not swaying builder optimism and new construction. Newly constructed homes will continue to be a strong viable option for homebuyers as the demand still remains high and existing homes for sale are at an all-time low.
Housing Trends - The Summer Market will be Hot Hot Hot
Due to a combination of various factors, experts are anticipating the summer real estate market is going to be hot - hotter than average. To start, they are predicting mortgage rates will remain low. They will not be as low as 2020, but Freddie Mac is predicting that rates will average about 3% for most of 2021, and The Mortgage Bankers Association estimates rates could climb to around 3.4% by the end of 2021.
The vicious cycle of high demand and low inventory of home inventory will feed the perfect environment for a strong summer market. Although it is still certainly going to be a seller’s market and sellers will have the advantage of hiking up asking prices due to the low inventory, experts are saying that low inventory will just heighten the competition amongst homebuyers (i.e. multiple offers, bidding wars, offers above list price) and homes will still be flying off the shelves. As mentioned earlier in the rundown, higher builder confidence and production will only feed the predictions the summer home sales will be booming.
Positive buyer sentiment, higher employment levels, job growth, and the economy reopening - all trends that are expected to come out of higher vaccine distribution and the U.S. slowly reopening - are also trends anticipated to contribute to a boost in the summer housing market and into the fall. For example, we are already seeing 2021 U.S. unemployment rates drop compared to 2020. The February 2021 U.S. unemployment rate was 6.2% whereas the April 2020 U.S. unemployment rate was 14.8%.
The easing of COVID-19 restrictions also, unfortunately, comes with the COVID-19 homeowner protections being gradually rolled back. The Consumer Protection Bureau reports that measures to prohibit lenders from foreclosing on most mortgages will expire June 30, 2021. Approximately 263,000 families are not in forbearance and are at the highest risk of foreclosure. Another 2.1 million homeowners are more than 90 days behind on payments putting them also at foreclosure. However sad this may be, this also means the lack of available home inventory will see an increase over this year.
Finally, the industry saw record-breaking home sales in 2020. Zillow reports the 2020 U.S. housing market gained about $2.5 trillion in value. This is the most value-added in a single year since 2005. On top of this jaw-dropping figure, Zillow is predicting 2021 will be even stronger than 2020. Let the record-breaking upward trend begin!
Median Home Sale Prices are Skyrocketing - Buyers Still Motivated
Although the market is very much a seller’s market, buyers are still not swayed. The median home sale price during a 4-week period ending March 21st showed an increase of 16% year-over-year, and it is the highest it has ever been to date at $331,590 according to Redfin. Out of all the homes sold last month, 36% of them sold for more than their asking price. The nation saw pretty consistent median sales price increases except for San Francisco.
Housing Wire reports that Inventory is still moving fast regardless of home prices. Examples include heightened competition amongst buyers, offers being submitted above asking price, and homes selling in less than 2 weeks. Take advantage of this while it lasts because it won’t last forever. The growing concern amongst industry professionals is eventually the asking prices will remain high, but the mortgage rates and inventory will also continue to rise. On top of this, as the economy begins to recover, building material costs will also recover making post-pandemic home buying very costly - more than ever before.
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