March 2021 Existing and Pending Home Sales

March 2021 Existing and Pending Home Sales

May 5, 2021
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March home sales were still running above pre-pandemic levels, up 12% from March of 2020. However, momentum appears to be slowing. Inventory levels are insufficient and holding back home sales.

Hello, this is Lawrence Yun, chief economist with the National Association of REALTORS®, to discuss the latest housing market trends.

The home sales in March was still running above pre-pandemic levels, up 12% from March of 2020, however, the momentum appears to be less strong than what happened in the prior month. So the month-to-month on a seasonally adjusted basis actually fell 4%, but up 12% from one year ago.

So why did the sales decline? Well, we know that home prices are rising, and fast. Furthermore, mortgage rates are inching higher, therefore, housing affordability is getting hit. Is that the reason buyers stepping out as to why home sales are losing a bit of momentum, and the answer is no.

Buyers are still actively in the market. We simply don't have enough inventory. Inventory level insufficient—just little over 1 million. In normal conditions, the inventory should be closer to 2 or 3 million nationwide. We are well short; consequently the months supply, the industry jargon about the tightness of the market, essentially at two months. Normal would be four to five months. We are way below that level. Consequently, home prices are at an all-time high. Very good news for homeowners, but the price appreciation 17.2% from one year before. I looked at our past data, and this is the highest price appreciation over a 12-month time span since we began tracking the data from 1960s. So strongest price appreciation ever. This is implying that the buyers are in the market. The days on the market: record low. So where is the inventory?

Really short. Well, it is short, but principally in the single-family market. Condominium relatively better, but it is short on the single-family and at the lower price point. Essentially, for the starter home, any homes under $250,000, abruptly essentially getting multiple offers. Strong price appreciation, and due to the fact of insufficient inventory, home sales simply cannot grow because of the strong price increase.

Naturally, there's a question about a housing market bubble, and I can say definitively home prices will not be declining this year, and probably not next year as well. Will it decline in future years? Well, anything could happen, but the fundamentals of today's market versus what happened 13 years ago during the foreclosure crisis is different.

We have insufficient inventory, as mentioned. Back then, 4 million homes available for sale; today only 1 million. Drastic contrast. Furthermore, the mortgage underwriting standards today are considered to be on a very sound and maybe even tight underwriting standards.

That's why we need to increase supply supply, supply, supply, whether it is through reducing some of the tariffs on lumber so the home builders have easier time building home and get that profit margin, maybe we need to examine some of the regulation for home building. If it's too excessive, then that's going to hold back supply. Maybe the zoning requirement needs to be re-examined, or possibly providing some subsidized training for construction workers.

Other ideas that many REALTORS® are saying is could there be a temporary tax reduction, capital gains tax reduction, for investor sale? If we were to reduce capital gains tax just temporarily, then we may see the investors begin to unload those properties onto the market so that first-time buyers have a better chance to buy that home. Something to consider in this current tight inventory conditions. Certainly a message we are passing on to the Biden administration as well as to many members of Congress in Washington. Thank you for listening and stay safe, and best to you all.

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