The Housing Shortfall is driving up prices, but a crash is unlikely

 Summer of the Speed buyer

This recent article by chief economist of the National Association of Realtor's economist Lawrence Yun puts the current real estate market into perspective:

Remember when it could take years to sell a home.  MLSs were flooded with distressed properties.  In Miami, it was up to six years according to new accounts in the wake of the 2008 Financial crisis.

Today, of course, its the opposite story.  It's generally taking just of couple of weeks, and sometimes day, to find a buyer.  From listing to contract, homes sold in typically 17 days in April, the fastest rate ever.  In most markets, home buyers can't risk leisurely weighing several listings before committing to most likely the most expensive purchase of their life.  Rushed decisions can easily lead to buyer misgivings-about overspending for the home, its size, or having insufficient reserves for upkeep.  Still, most buyers come to see that they made the right decisions in these competitive times.  Seeing prices, and hence their wealth, rising helps.

Could it all crash as happened in 2008 to 2010?  Not likely.  The current housing cycle is fundamentally different.  We thankfully don't have risky subprime mortgages that overstretched buyer's budgets.  The gateskeepers at banks, mortgage brokers, and government regulators demand that loan-to-value ratios, debt-to-income ratios, and income documentation meet guidelines before a mortgage is approved.  To be sure, even with soundly written mortgages, we know some defaults can occur.

A second major difference is supply.  Leading up to the housing bubble heyday, builders overbuilt.  By my calculations, America had 2.1 million surplus housing units by 2006.  Following the crash, underproduction steadily chipped away at the surplus, such that inventory normalized by 2011.  Continuing underproduction led to the housing shortage.  By 2015, the shortfall was 2 million homes.  By the end of 2020, it totaled 4.8 million homes.  The lack of inventory is why home prices are in no danger of falling sharply.  

Homebuilding activity in 2021 will be slightly above historical norms, but it will take at least a few years to correct the massive shortage.  In the meantime, we expect the national median home price to rise 9% this year and another 3% in 2022.  Hyperseed homebuying should taper off by year's end as supply improves and affordability challenges persist.

4 Major Incentives to Sell This Summer

 

 

While the housing market forecast for the second half of the year remains positive, there may not be a better time to sell than right now. Here are four things to consider if you’re trying to decide if now’s the right time to make a move.

1. Your House Will Likely Sell Quickly

According to the most recent Realtors Confidence Index released by the National Association of Realtors (NAR), homes continue to sell quickly. The report notes homes are selling in an average of just 17 days.

Average days on market is a strong indicator of buyer competition, and homes selling quickly is a great sign for sellers. It’s one of several factors that indicate buyers are motivated to do what it takes to purchase the home of their dreams.

2. Buyers Are Willing To Compete for Your House

In addition to selling fast, homes are receiving multiple offers. NAR reports sellers are seeing an average of 5 offers, and these offers are competitive ones. Shawn Telford, Chief Appraiser at CoreLogic, said in a recent interview:

“The frequency of buyers being willing to pay more than the market data supports is increasing.”

This confirms buyers are ready and willing to enter bidding wars for your home. Receiving several offers on your house means you can select the one that makes the most sense for your situation and financial well-being.

3. When Supply Is Low, Your House Is in the Spotlight

One of the most significant challenges for motivated buyers is the current inventory of homes for sale, which while improving, remains at near-record lows. As NAR details:

“Total housing inventory at the end of May amounted to 1.23 million units, up 7.0% from April's inventory and down 20.6% from one year ago (1.55 million). Unsold inventory sits at a 2.5-month supply at the present sales pace, marginally up from April's 2.4-month supply but down from 4.6-months in May 2020.”

There are signs, however, that more homes are coming to market. Odeta Kushi, Deputy Chief Economist at First American, notes:

“It looks like existing inventory is starting to inch up, which is good news for a housing market parched for more supply.”

If you’re looking to take advantage of buyer demand and get the most attention for your house, selling now before more listings come to the market might be your best option.

4. If You’re Thinking of Moving Up, Now May Be the Time

Over the past 12 months, homeowners have gained a significant amount of wealth through growing equity. In that same period, homeowners have also spent a considerable amount of time in their homes, and many have decided their house doesn’t meet their needs.

If you’re not happy with your current home, you can leverage that equity to power your move now. Your equity, plus current low mortgage rates, can help you maximize your purchasing power.

But these near-historic low rates won’t last forever. Experts forecast interest rates will increase in the coming months. Nadia Evangelou, Senior Economist and Director of Forecasting at NAR, says:

“Nevertheless, as the economic outlook for the United States looks brighter for the rest of the year, mortgage rates are expected to rise in the following months.”

As interest rates rise, even modestly, it could influence buyer demand and your purchasing power. If you’ve been waiting for the best time to sell to fuel your move up, you likely won’t find more favorable conditions than those we’re seeing today.

Bottom Line

With supply challenges, low mortgage rates, and extremely motivated buyers, sellers are well-positioned to take advantage of current market conditions right now. If you’re thinking about selling, connect with someone from our team today to discuss why it makes sense to list your home sooner rather than later.