It has been roughly one year since the pandemic put the housing market on hold for several months last spring, but the real estate market bounced back quickly and has been booming since then. More existing homes were sold in 2020 than in any year since 2006. Housing demands have remained strong in the first quarter of 2021 but the supply still lags behind. Buyers who are currently struggling to find a house are likely to see an improvement in the number of listings available to them as more sellers list their houses for the spring-summer buying season.
Even with rising mortgage rates and higher prices, the housing market should remain strong due to very tight inventories and increasing demand, as more millennials are projected to buy houses this year. Millennials make up the largest share of homebuyers in the US, according to a 2020 survey. According to a new study, buying is more cost-efficient than renting in a growing number of the largest cities in the country. This is encouraging news for the millions of millennials who are approaching peak homebuying age.
sales
Earlier in February, sales had dropped to a six-month low from one year ago when home sales first started to fall due to the pandemic but currently, sales are higher by 12.3%. While each of the four major U.S. regions experienced month-over-month drops, all four areas welcomed year-over-year gains in home sales. The pandemic has led to a surge in demand, despite the drop in home sales and the median sales price of an existing home has risen 17.2% since last year.
The results of more listings in the spring-summer buying season and higher mortgage rates could slow down the pace of home price appreciation. If homes sit on the market longer, markets will then accumulate more active listings. In the second half of this year, we will see higher mortgage rates and, as they continue ticking up, it may begin to create a ceiling on the median home price growth, as monthly payments on new mortgages will become less and less affordable.
selling
A major contributor to the low supply of homes on the market in the latter half of 2020 was the fact that many homeowners chose not to relocate – especially if they were already in a house with plenty of space for remote work and virtual schooling.
Consumer confidence is growing with the rollout of vaccinations for adults and the declining unemployment numbers all make selling a home feel less risky. It is expected that inventory will pick up in April and May as we head into summer and continue into June and July. Though, this increase in inventory will be at a "measured pace," most home sellers don't effectively increase housing inventory without also contributing to rising demand as most sellers will buy another house to live in after selling their current one.
Sellers will continue to have the upper hand throughout the summer of 2021, and it is reasonable to expect home prices to climb as a result – a positive for those who do choose to sell their houses. Keep in mind that these predictions represent the expectation for housing on a national scale. The effects on individual housing markets will vary widely.
buying
The coronavirus pandemic drove mortgage interest rates to historic lows for most of 2020, and the new year started off with a new record low for interest rates for 30-year, fixed-rate mortgages when Freddie Mac reported the average interest rate was 2.65% in early January.
Going into spring, mortgage interest rates have trended upward, but remain low from a historical standpoint. On April 8, Freddie Mac reported the average interest rate for a 30-year, fixed-rate mortgage was 3.13%. Low interest rates, the continued creation of new households across the U.S. and a desire for more space among existing homeowners has driven demand through the roof in 2020 and into the start of 2021. Many areas are seller's markets, meaning there are not enough homes available to match the number of active buyers.
Homebuyers can expect to compete with others in home offers, which can drive up prices and may mean your home search takes longer because you lose out to competing offers on a couple of homes before your offer is accepted. Prices of existing homes are projected to increase 5.9% in 2021, compared with a 10% jump in 2020, according to an average of the latest forecasts from Fannie Mae, Freddie Mac, the National Association of Realtors (NAR) and the Mortgage Bankers Association. The largest share of homebuyers across the U.S. are millennials, with the youngest in the generation closing in on 30 years old – a popular time to consider buying a home.
new construction
The answer to high demand among homebuyers is to build new houses and for those houses to meet the space requirements, after a year spent working, learning and relaxing all at home. Low rates of residential construction have lent to a housing shortage over a period of multiple years. It appears builders are working to ease demand at least somewhat. In February, there were building permits authorized for 1.68 million privately owned new housing units in the country, according to the U.S. Census Bureau. As the weather warms up for ideal construction conditions in many parts of the U.S., expect these approved properties to come on the market or become occupied after completion. Even with consistent growth in builder activity, most housing markets can still expect the number of homebuyers to outpace the inventory of available homes.
housing market crash
The real estate party is in full swing. The National Association of Realtors (NAR) said last week that prices of existing homes soared a record 17 percent from March 2020 to March 2021 — a pace that eclipsed even the eye-popping appreciation of the last boom. The last time the U.S. housing market looked this frothy was back in 2005 to 2007. Then home values crashed, with disastrous consequences. When the real estate bubble burst, the global economy plunged into the deepest recession since the Great Depression. Now that the housing market is booming again, buyers and homeowners are asking a familiar question: Is the housing market about to crash?
Indeed, the foundations of this housing market look far more stable than that of 15 years ago. The supply of homes for sale has fallen to all-time lows and borrowers are more creditworthy than ever. Experts agree that no painful crash is on the horizon and here are some reasons why:
Inventories are at a record lows: The NAR says there was just a 2.1-month supply of homes for sale. This explains why buyers have little choice but to bid up prices and it also indicates that the supply-and-demand equation simply won’t allow a price crash in the near future.
Builders can’t build quickly enough to meet demand: Homebuilders pulled way back after the last crash, and they never fully ramped up to pre-2007 levels. Now, there’s no way for them to buy land and win regulatory approvals quickly enough to quench demand. While builders are building as much as they can, a repeat of the overbuilding of 15 years ago looks unlikely.
Mortgage rates remain near historic lows: After hitting all-time lows in January, mortgage rates have risen a bit — but not much. Freddie Mac’s survey of lenders says the average rate fell below 3 percent last week. Low rates give home shoppers increased buying power. The Mortgage Bankers Association expects rates to rise to 3.7 percent by the end of 2021. That would crimp refinancing, but not homebuying.
Demographic trends are creating new buyers: There’s strong demand for homes on many fronts. Many Americans who already owned homes decided during the pandemic that they needed bigger places. Millennials are a huge group and in their prime buying years.
Lending standards remain strict: In 2007, “liar loans,” when borrowers didn’t need to document income, were common. Lenders offered mortgages to just about anyone, regardless of credit history or down payment size. Today, lenders impose tough standards on borrowers — and those who are getting mortgages overwhelmingly have stellar credit. The typical credit score for mortgage borrowers in the third and fourth quarters stood at a record high 786, per the Federal Reserve Bank of New York.
Foreclosure activity is muted: In the years after the housing crash, millions of foreclosures flooded the housing market, depressing prices. That’s not the case now. Most homeowners have a comfortable equity cushion in their homes and lenders haven’t been filing default notices during the pandemic, pushing foreclosures to record lows in 2020.
All of that adds up to this consensus: Yes, home prices are pushing the bounds of affordability, but no, this boom shouldn’t end in bust.
The IDEA Club
sue gilman
keller williams
I understand that buying or selling a home is more than just a transaction; it’s a life-changing experience. That’s why I am dedicated to providing exceptional, personalized service for all of my clients. I take great pride in the relationships I build and always work relentlessly on the client’s behalf to help them achieve their real estate goals. As a apart of Keller Williams, I have a team of experts that represents the best and brightest in the industry. Today’s buyers and sellers need a trusted resource that can guide them through the complex world of real estate.
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