Not long ago, frenzied markets were limited to select metro areas like Seattle, San Francisco, Boston, and other tech hubs where young adults were moving.
Now the tumult is everywhere.
Existing-home sales prices are up 18.4% year over year, and every single one of the more than 180 metro areas tracked by NAR have seen year over year price increases. Indeed, the U.S. has seen 109 months of year-over-year housing price gains, said Jessica Lautz, vice president of demographics and behavioral insights at the National Association of REALTORS®, during the Broker Engagement Committee meeting at the virtual 2021 REALTORS® Legislative Meetings on Friday.
“This is a very different market than what we’ve experienced or collected data on, at least in recent history,” Lautz said.
As of now, there are no signs that buyers are going to take a step back, in fact, more are entering the market to take advantage of the low interest rates. Mortgage applications are up 53% from a year ago, Lautz added. However, there simply isn’t enough inventory to meet the demand with only 1.07 million housing units for sale nationwide, a historic low dating back to 1982. With properties selling as soon as they hit the market, it’s no wonder that average days on market are the shortest ever recorded: 18. Eighty-three percent of homes listed in March sold in less than a month.
“When you don’t have supply, you’re going to have bidding wars, you’re going to have a lot of people in the pipeline, and you’ll see an increasing number of buyers willing to move further distances to get into a home because they can remove remotely,” Lautz said.
Compounding the low-inventory issue is the lack of availability of land in many metro areas,
The shortage of skilled labor needed for new construction, material shortages—lumber costs have gone up 200%—and supply chain hurdles in Canada. Laws, such as density restrictions and parking restrictions, are also intensifying housing pressures, pushing prices up. The NIMBY (not in my back yard) sentiment against multifamily units has led to increased homelessness in parts of California, Lautz said.
Another pressure point is the lack of homeowner turnover. The median tenure in a home now is 10 years, an all-time high, Lautz said, and life events that usually trigger moves aren’t happening as often. There has been a drop in marriage and birth rates, and people are staying longer in their jobs.
“Our first-time home buyers out there who don’t have the ability to pay cash, who are taking advantage of FHA loans and VA loans, USDA loans, they’re really being hit,” Lautz said.
Buyers who can only come up with a 3% down payment are going to have a hard time competing because they can’t waive contingencies with those types of loan products, Lautz said.
With pending listings up and active listing down—and bidding wars driving up prices—Lautz says it’s important to acknowledge that it’s a difficult time for real estate professionals, as they’re helping buyers navigate this market while trying to keep optimism up while offer after offer is denied.
Here are a few ways markets may see some inventory relief:
- Vaccine rollout: Many people delayed listing during the pandemic because they didn’t want people in their homes due to potential COVID-19 exposure. As more people become vaccinated and COVID-19 cases continue to fall, those who delayed a move will become more motivated to list, Lautz said.
- Housing starts: An uptick recently brought housing starts to their highest level in 14 years, Lautz said. However, underbuilding for more than a decade prior has caused a deficit that still needs to be made up.
- Cash in on equity: CoreLogic recently surveyed 77,000 Americans, asking them if they own their home, whether they have a mortgage, and if they’re current on their payments. The results showed that more people of color carry a mortgage compared to white Americans, and people of color are more likely to be behind on a payment, including 18% of Hispanic or Latino homeowners and 17% of Black homeowners—especially in the Gulf Coast states. “It’s not very likely that this going to be a foreclosure situation,” Lautz said. However, these homes may come onto the market so that homeowners can cash in on their equity. Even those in forbearance programs have an average of $87,000 in equity right now, she said. According to CoreLogic, only 4% of homeowners have 10% of equity or less. “There was a time when the people behind on their mortgage didn’t have any equity at all, so they didn’t have any alternatives and they lost their home and had no money,” said Donna Smith, chair of the Broker Engagement Committee.
- Building repurposing: Transforming vacant hotels, motels, and office buildings into residential apartments and condos provide another avenue to create more inventory. In a recent NAR sustainability survey, members were asked if they have experience in repurposing commercial buildings, and only 10% of brokerages do, Lautz said. Buffalo, N.Y., is one example of an area with several vacant commercial properties where redevelopment could occur, she added.
“I don’t consider this a recession, but I do consider it a problem,” Smith said. “With the way prices are increasing on homes, I worry about people being underwater [in the future]. We really have to watch that in all markets.”
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