Whether you’re buying a home, selling one, investing in real estate or taking part in any other aspect of the real estate industry, understanding the market trends is one of the most important things that you can do. Like every other industry in the world, the real estate industry has been thrown into influx by the ongoing COVID-19 pandemic. Ever since the United States government declared a state of emergency because of the coronavirus in March of 2020, the housing market changed significantly.
So, what are the current real estate trends? How long will they last? While it’s impossible to answer that second question definitively, we can look at the advice of some industry experts to get a better understanding of how you should approach real estate transactions over the course of the next several months.
Housing Supply Trends
Read More »This lack of inventory is one of the most important factors in the red-hot housing market. Like every other industry, the real estate market largely hinges on the laws of supply and demand. Currently, there aren’t enough homes on the market (supply) to meet the needs of the millions of buyers (demand).
This insufficient supply has created a housing market that greatly favors home sellers. Take a look at the numbers practically. Let’s say you tried to sell your home three years ago. If there were 6 other homes on the market in your neighborhood then, your home would have been number seven. With seven homes to choose from, potential buyers would have several choices. Today, your home would be the fourth option on the market. What does that mean? It means that if there are the same number of buyers, you can expect a larger offer on your home.
In a more well-stocked housing market, buyers don’t have to submit such high offers because sellers are more apt to take a lower offer simply to get their house to sell. With such a sharp decrease in inventory, buyers are more likely to get into a bidding war and pay more for a home than the same property would have gone for just three years ago.
The Impact on Home Prices
In April of 2021, the average price of a home in America reached the highest it has ever been. After jumping up by more than 17% in comparison to April of 2020, the average price of a single-family home in the United States hit $375,000.
This surge in home prices is directly related to the lack of inventory. When there aren’t as many homes on the market, the people who are selling available homes can charge more for them. Again, the principles of supply and demand dictate the price of homes.
If you’re considering selling your home, right now is a great time to contact a realtor and get a For Sale sign in the yard. You could be in a position to get more out of your home today than you may be able to get a year from now. With a seller’s market in full swing, you also may find yourself not having to wait as long to get a good offer. In fact, studies indicate that homes are selling on average of 20 days faster today than they were at this time last year. With so little inventory, buyers are making aggressive offers quicker, which puts you as a seller in the driver’s seat.
What Has Caused the Shortage of Homes?
One of the main reasons that there is such an inventory shortage is the fact that the government put a moratorium on foreclosures and evictions when the economy bottomed out in the face of the COVID-19 pandemic. When people aren’t allowed to evict non-paying tenants and banks can’t foreclose on properties that have fallen behind, they aren’t able to put those properties on the market. While that may not make up a huge portion of the normal housing market, every property matters when you’re considering such a housing shortage.
Additionally, there aren’t as many new homes being built. According to industry experts, homebuilders would need to construct somewhere between 1.1 and 1.2 million single-family homes in order to keep up with the current housing demand. Unfortunately, there haven’t been more than 1 million new single-family homes built in a given year in the United States since 2007.
Finally, home buyers are motivated to act quickly while interest rates continue to plummet. According to Forbes, mortgage interest rates have stayed at record lows through three straight Presidential Administrations. While this has had an impact on first time buyers who are able to get approved for mortgages, it has also benefited real estate investors who have snatched up multiple investment properties in an effort to take advantage of the interest rates.
What It Means for You
The impact that the current real estate market has on you really depends on the role that you intend to play in the market. If you are a seller, you have most of the power right now. Making the decision to put your home on the market today means that you will be adding to a slim inventory. That means that you’ll be able to get more out of your home than you would’ve been able to get a year ago. It also means that you won’t have to wait as long to get a good offer on your home so you will need to be prepared to move quickly.
If you’re a buyer, you may want to get into the housing market because interest rates are still low. However, other than low interest rates, there are very few benefits to buyers in the current market. If you’re determined to make a move right now, you will have to pay more than usual for a home. Additionally, you may have to settle for buying a home in a location other than your ideal neighborhood because you can’t buy what’s not for sale. This isn’t a great market for buyers. If you feel tempted to jump in based on the interest rate being low, keep in mind that the interest rates were low before the pandemic started. In fact, rates have dropped during the last three Presidential Administrations. The pattern would indicate that interest rates will continue to drop so being motivated by that could set you up for an overpay.
How Long Will This Last?
Ultimately, there is no way to give a clear answer to this question. Real estate trends are as fickle as any other industry and what seems stable today could be completely different within a few days. However, we can look at the projections from some of the most trusted names in the industry to try to make a more informed decision.
The Mortgage Bankers Association (MBA) forecasts that there will be roughly 1.134 million single-family homes sold in 2021. They also project that number to go up in 2022 and 2023. The assumption is that homebuilders will ramp up production in an attempt to increase their own business in the face of a thin housing market.
There is no way to determine exactly when the market will shift to a more normal level of supply and demand. However, the general idea is that the rest of 2021 will likely continue to favor sellers. The fact that we are already five months into the year seems to indicate that there isn’t enough time for homebuilders to build enough properties to meet the demand. As long as the current pattern continues, the market should return to a certain level of normalcy in 2022.
Being successful in any real estate transaction requires that you understand the market trends. When you have a better understanding of what the market is doing, you can decide between making a move or waiting on a market shift.
