Mortgage rates are at record lows. Scarce inventory keeps the market robust. Affordability concerns, however, continue rising. But these low rates, growing savings accounts, and a stronger jobs market have put the dream of homeownership within the reach of a larger number of potential buyers. This is all good news, right? But what if the housing market were to crash? Is that a possibility?
The 2021 Housing Market
This year has marked a particularly strong housing market. In nearly every corner of the country, homes are in high demand. It’s a boon for homeowners selling, but worrisome for buyers as prices keep trending up. This upward trend isn’t new — home prices increase, on average, in the mid-single digits every year. What is new are the double-digit price increases reflecting the meeting of above-average demand and acute low supply. Prices have increased because there’s enough money to go around and mortgage rates are at all-time lows.
The Law of Supply and Demand
The economy appears to be rebounding, and millennials are approaching or already in their home-buying years. These are incredible drivers of the recent surge in prices. But housing supplies haven’t been this low since the ’70s. Millennial purchasers increased homebuilding prices, and investors snapping up deals are just some of the causes of the housing shortage. More and more companies are allowing traditional positions to be held from home. This, coupled with low mortgage rates, is fuel to the fire of demand — most critically in low-density neighborhoods. Single-family homes are the most in-demand because they offer larger living space, no wall-sharing with strangers, and a separate property or yard space. So, with current trends in real estate, such as home sales prices and rent increases, where will home price trends go from here? Let’s take a look at a few key takeaways from recent housing market insights.
Will There Be a Bubble?
There’s never been a time since records were kept that home prices have risen so quickly — not even during the boom that happened right before the crash of 2008. Bidding wars have never been this common, forcing many buyers to pay the total in cash, with some bids topping the asking price by $1 million. You wouldn’t be remiss in asking “does this mean we’re in another housing bubble?” Trends have built on the low-interest rates introduced during the COVID-19 pandemic. As people sought to move out of the city to more rural and suburban communities, they snatched up houses early as fast as they went to market. Economists and industry execs agree — a home value explosion of this magnitude isn’t sustainable. Home prices increasing 20% every year in perpetuity simply isn’t doable. But increasing home price trends today are not the same as the 2008 bubble. In 2008, housing inventory was plentiful, but no one had the funds to make large purchases. Today, inventory is massively short and builders are cautious about adding to the supply. Analysts suggest the housing market may self-correct thanks to these large price gains. June’s home sales data showed the weakest month since spring 2020 — the third month in a row of home sale decline. Home sales had been steadily declining from February 2021 through May 2021 but began inching a bit higher in June.
Preventing the Bubble Burst
While some buyers can afford to throw down a million dollars more than a seller is asking, most buyers are simply getting outbid. And rather than pay exorbitant prices, a lot of potential home buyers decided to just wait until the market returns to a semblance of normalcy and rent a home instead. This could actually be the blessing the market needs right now. As home inventories rise, it’ll lengthen the cycle and prevent the bubble burst.
Home Price Trends in 2021
Here’s a look at some of the trends in 2021:
Existing homes saw a decrease in sales of 2% in August 2021.
August brought home sale declines to all four of the major U.S. regions — month-over-month and year-over-year, which broke a streak of increases for the two months prior, according to NAR. This could indicate the frenzied buying of the past year is finally cooling off. Home sales by region for July:
- South – 43%
- Midwest – 23%
- West – 21%
- Northeast – 13%
Of the nation’s sales, the highest sales were between $250,000 and $500,000 and accounted for 43% of all August home sales. Homes in the price range of $100,000 to $250,000 were 25% of all home sales in August.
New build sales are down 24.3% in the U.S.
Because price increases for brand new homes were in the double digits, they became out of reach for most buyers. But builders can’t design and build homes any cheaper due to the rising costs of building materials. If prices on raw materials come down in the foreseeable future, builders may recommit.ProspectNow provides reliable data that’s been helping real estate agents, brokers, and investors since 2008. The data you can get from ProspectNow is a lot more expensive on other competing platforms. By using ProspectNow, you will get more leads, close more deals, and make more money. ProspectNow is a vital tool for your business success in real estate or real estate marketing. Additionally, ProspectNow is trustworthy and easy to do business with, and a provider of reliable data.