The housing experts are predicting that the current housing boom will flatten in 2022—or possibly early 2023—when mortgage interest rates rise.
The current boom in the last 12-18 months produced some frantic buying, bids in excess of asking prices, and plenty of worry among would-be home buyers. But this has not been a bubble. A bubble is not simply rising prices, but demand not justified by fundamental economic factors. The key to the buying boom has been low mortgage rates plus a shift in desired housing type.
There is no bubble to burst, though prices may retreat from panic-buying highs. Record-low mortgage rates and shortage of inventory are keeping the US housing market strong concerning buyer demand. Prices have been surging month-over-month breaking new records.
This year’s real estate market has been exceptionally strong, with strong housing demand in virtually every region of the country. A strengthening economy and millennials nearing their peak homebuying years are fueling a residential housing boom. Low mortgage rates, combined with an increase in work-from-home opportunities as a result of the pandemic, have fueled a surge in housing demand, particularly in lower-density suburbs. Buyers are driving up home prices in the 2021 housing market, causing homes to sell quickly.
Some hyperactive buyers make offers without seeing the property and forego contingencies to win bidding wars in the highly competitive housing market. The historically low mortgage rates have fueled an increase in demand, particularly among millennials. However, they are running into a shortage of available housing. Many buyers are still in the hope of finding a home that fits their budget and needs. Despite popular belief that now is not a good time to buy, many home buyers are looking to lock in their monthly housing payments by taking advantage of still-low mortgage rates.
However, in this hot real estate market, it’s difficult for buyers to find a good deal, especially with the typical asking price rising by double digits. Although the housing market is still expected to favor sellers, we appear to be at a tipping point in the housing market, where prices have risen so dramatically that buyers are backing off and home sales are slowing down. According to Realtor.com, the median national home price for active listings in June was $385,000, a 12.7 percent increase from the previous year. The annual price growth rate has slowed for the second month in a row. The annual median home price growth rate in May was 15.2 percent, down from 17.2 percent in April.
The decline in time-on-market has slowed for the first time in nearly four months, indicating that some properties are sitting on listing portals for a little longer. These market trends point to a positive development for buyers as we enter the crucial home buying season of 2021. Additionally, compared to last year, the number of newly listed properties is also increasing, and the sharp inventory losses of recent months have moderated. The net result has been a deceleration in the growth of listing prices. While home prices are still rising at a double-digit rate, they have passed their peak growth rates.
The popular belief is that it is a good time to sell and that ultimately means that the numbers of home sellers that hit the market are constantly increasing. These latest market trends (seen in May/June) point to a shift in real estate activity, implying that we may have passed the peak of this hot housing market, which is good news for home buyers. The market is still heavily skewed toward sellers, but we may be seeing the first signs of a return to a more balanced real estate market following the most active sales period in years.
As of today, the housing market remains far from normal, with inventories falling by more than 38% a year and historical declines. The current supply of homes on the market is at an all-time low, dating back to the turn of the century. With the recovering economy, more buyers are entering the market. And, because there is still a limited supply of housing inventory, home prices continue to rise even in a low-interest-rate scenario.
Softwood lumber increased by more than 300 percent during the epidemic, and while it has dropped considerably in the last month, it is still approximately 75 percent more than the 2019 normal. The median price of a newly built house in June increased 6% from June 2020, and while this is a significant increase historically, it pales in comparison to the 15%-20% yearly growth witnessed in prior months. New home builders will ramp up production to help relieve the shortage of inventory of homes for sale throughout the United States. The added inventory would no doubt aid buyers in their search to secure their dream home, while also helping to ease price increases throughout the country.
With increased supply, home price growth will gradually moderate, but a broad price decline is unlikely.
From Realtor.com: https://www.realtor.com/research/mortgage-rates-hit-lowest-point-since-february-2021/
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