The Real Estate market status, April 13th, 2021
It is a discouraging scene: Bidding wars, soaring prices, and fears that homeownership is becoming out of reach for millions of Americans. We are in a housing frenzy, driven by a massive shortage of inventory — and no one seems to be happy about it.
Why it matters: Not all bubbles burst. Real estate tends to rise in value much more easily than it falls. Besides, says National Association of Realtors chief economist Lawrence Yun, this "is not a bubble. It is simply lack of supply."
By the numbers: America has a record-low number of homes available for sale — just 1.03 million, according to the latest NAR data. That compares to a peak of more than 4 million at the height of the last housing bubble, in July 2007.
The total number of active listings this week is down a record 54% from the same week a year ago, per Realtor.com. That in turn has helped to drive national prices up 17.2% over last year.
Almost half of homes now sell within one week of being listed, per Redfin.
The big picture: Prices are being driven upwards by a combination of factors, including continued low mortgage rates, a pandemic-era construction slowdown, a desire for more space as people work increasingly from home, and a stock market driven increase in money available for down payment.
A rise in financial buyers — large corporations buying up homes to rent them out — is only making the market tighter and decreasing the number of owner-occupied properties available.
What is missing: Unlike the mid-2000s, this time around there is no exuberant culture of property flipping. While interest rates are low, lending standards are still tight, making it hard to buy a house you cannot afford.
Homebuyers to win bidding wars, are being forced to make rushed decisions. Successful bids often need to waive any financing contingency (Cash purchase) or waive home inspections in order to be more attractive to the sellers.
The worst-case outcome, says Yun, would be if "rates remain low, demand picks up with new jobs, there's no increase in supply, and the only thing that moves is home prices, until people get priced out. That would mean we are creating a divided society of haves and have-nots."
The best-case outcome, on the other hand, would be a construction boom accelerated by President Biden's infrastructure plan, which would create more supply and help to stop the rise in prices. Unfortunately building material prices are rising quickly and some cases are in short supply with long delivery times.
The bottom line: Housing prices are likely to remain high and rising for a while yet.