|SUMMER, 2021 UPDATE|
WILL THIS HOUSING MARKET CONTINUE TO GO BULL OR CAN WE EXPECT A BUST?
It will come as no surprise to hear that the booming Summer, 2021 housing market is expected to continue as it has since late 2020. A few trends contributing to the seller’s market most of the country is experiencing are:
Interest rates remain at historical lows with the average interest rate in January reported as 2.65%. While rates are trending upward, the average fixed-rate mortgage at the start of the summer was still hovering around 3.13%*
Inventory for residential real estate is down over 38% over the last year and at historic lows. As a result, home prices continue to rise by double digits. The continued need for extra housing space as employees continue working remotely.
“More homes were sold in the last year than any year since 2006”
A recent article in Forbes explains that there are many reasons for the increase in sales and frenzied market. Homebuilding hasn’t kept pace with population growth in recent years, while millions of Millennials have reached home-buying age, creating a generational housing shortage. This influx of first-time home buyers coupled with the changes brought by the pandemic and incredibly low-interest rates are also factors in the current market.
SIGNS OF SLOWING?
Market trends from May and June 2021, point to small shifts in real estate activity. We may have passed the peak of this hot housing market, but the market will most certainly remain skewed in favor of sellers and while it is unlikely a broad price decline is on the horizon, a more balanced market might be on the way.
According to Realtor.com, time-on-market has slowed for the first time in nearly four months, indicating that some listings are remaining available for a little longer which is a positive development for buyers as we enter busy summer buying months.
VACCINE INCREASES POTENTIAL SELLER CONFIDENCE
Contributing to the increase in inventory and slight slow to the market are growing consumer confidence and the roll-out of vaccines for Covid-19 coupled with declining unemployment numbers, giving potential sellers more peace of mind to enter the market and relocate.
As more sellers enter the market and inventory become more plentiful, we can expect to see prices stabilize and become somewhat more appealing to buyers looking to relocate. Some statistics support this as well. The National Association of Realtors posted that in the Northeast, existing-home sales decreased by 1.4% in May. The median price in the Northeast, however, increased by 17.1% since the same time last year.
IS THE BUBBLE ABOUT TO BURST?
There is a lot of chatter in real estate circles that this growing bubble is about to burst. But don’t believe it so quickly. According to experts, the current national housing market does not meet the definition of a bubble. Yet. That means that the fundamentals of the current housing boom are relatively structurally sound.
A real estate bubble occurs when home prices escalate beyond what can be explained by the fundamentals,” Mortgage rates, population growth, or household income growth,” explains Taylor Marr, Lead Economist for real estate website Redfin, “When expectations of price increases become the driver of price increases themselves instead of fundamentals that creates its own feedback loop.
‘A bubble is a kind of social epidemic—a period of feedback where price increases generate enthusiasm among investors, who then bid up prices more, and then it feeds back again and again until prices get too high’.”
In this case, the sustained housing boom is supported by the entrance of more and more new home buyers and traditional definitions of work-life shift.
“The key difference now versus during the housing bubble before the Great Recession is that back then it was easy credit that fueled speculation, not cheap credit,” says Marr. “It wasn’t uncommon for buyers to put nothing down and speculate on real estate because all they had to do was fill out a few pieces of paper and no one cared about the actual numbers. This time around the demand that’s fueling appreciating prices is real—from families, newly remote workers, and companies relocating employees to lower tax, lower regulation states.”
LANGUISHING HOUSES IN A SELLER’S MARKET
If inventory is so low, what happens to those properties languishing on the market? Even in a seller’s market, some properties remain unsold for extended periods. A recent New York Times article called today’s housing market
“A manic market with slim pickings.”
But if properties are moving so quickly and pickings are so slim, sometimes selling well over asking price and involving bidding wars, what are buyers to make of properties that are languishing on the market? Dozens of agents interviewed for the Times article observe that houses languish for obvious and mysterious reasons. Anything from proximity to a busy road to an unfashionable layout can cause a property to remain unsold. But in the current “buy sight unseen” atmosphere, when properties are moving almost before they are on the market, some purchasers fear the long term listing more than ever.
Some realtors have observed that the current market is being largely driven by city dwellers looking for properties further away from bustling Manhattan, making traditionally distasteful qualities in a property less of an issue. Others opine that properties can stay on the market for reasons that do not mean there is a real issue. Small things like poor listing photography, lacking descriptions and old, out of season exterior photos can make a property seem unappealing, but offer a buyer a great opportunity to scoop up a deal that others have bypassed.
Buyers ought to consider an overlooked property as they might find a diamond in the rough with nothing more than poor marketing holding it back.
STRESS LINES BEGINNING TO SHOW
According to CNN Business News, nationwide home prices are still overvalued by 10 – 15%. Overvalued housing markets are vulnerable to a meaningful price correction as mortgage rates eventually rise. Also, as the world continues to open and we return to a “new normal”, the people who left cities when they could work from anywhere are expected to begin returning to cities as more and more employees are called back to the traditional workplace.
Insider published an article on July 10, 2021, headlined “Wait until 2022 to buy a house, economists say.” Price growth on residential real estate will remain elevated into 2022 in part because Millennials are hitting peak homebuying age and the construction industry is lagging behind demand for new construction. 2022 is when economists believe prices will cool and supply will bounce back.
In the end, prices can’t keep going up forever, even when the fundamentals are sustainable like they are now. Strong increases in mortgage rates, which are likely coming soon, will inevitably cool home appreciation and bring prices back in line with wages.
GETTING READY TO BUY (OR SELL)?
Choosing the right realtor is the first step in any real estate transaction. Some of the top tips for making your you and your realtor are a good fit include:
Choosing the person, not the experience. Experience is great and choosing a realtor who knows what they are doing is important, but don’t make past experience everything. Make sure the person you are dealing with is good at negotiating and talking and understands what you are looking for.
Don’t be afraid to interview agents. Focus on neighborhood expertise, if you already know where you want to focus and then get a sense for whether you feel you can trust that person’s judgment.
Get referrals from other homeowners in the area. There is no bigger compliment to an agent than a referral from a past client.
Trust your Gut. Choosing to work with someone who has great reviews and strong referrals is smart, but trusting your gut is also important.
Look for reviews that tell the story:
“Good, honest, kind, generous people.
Charles Rutenberg agents are very honest
in business and a pleasure to do business with.
I would recommend them very much.”
Support is key too. Find out whether the realtor you choose to work with has support available if they are unable to help or answer your questions. It is important to look for these qualities when buying or selling your most valuable asset.
“The agents and organization of
Charles Rutenberg Plainview are fantastic.
We had a huge amount of attention and
support throughout the entire home buying process.
The agents are knowledgeable, caring and very thorough.
Any question or concern we had was addressed
immediately by our agent!!!!
I highly recommend this Realty company to
anyone buying or selling their home (or any property).
Kudos to our agent and the company!!!”
MAKE YOUR TRANSACTION SEAMLESS:
In such an active market and when dealing with what may be your most valuable asset, make sure you take all of the steps possible to make your entire transaction as simple as possible.
Start with a Great RealtorDo you HomeworkWork with an lawyer you can trustIf you are the buyer, choose a title company that makes closing title quick, easy and efficient.
Find out more about Title Companies here.
Do you have questions about the market, selling or purchasing a home or anything else related to real estate and title insurance? Contact us at Habitat Abstract to learn more.