A Brave New World? A Look At the Remainder of the 2021 Housing Market

Now that we are just about at the midpoint of 2021, it’s time to take a quick look at the housing market, because things have changed drastically from just 12 to 18 months ago. Supply and demand are terms the real estate world have become all too familiar with over the past year. Pandemics and political landscapes moved the trajectory of the real estate market from humming along to a rocket-like change in inventory.

According to NPR, home prices have jumped a full 19.1% from just a year ago, and the median home sales price has now settled at $341,600. These are both record-setting numbers, with the jump in prices being the largest ever in just a year.

And these numbers tell us a good deal about the market. Knowing what they mean can help you navigate a changed landscape when a critical job move or fresh scenery is necessary for you or your family.

The Cause Behind Spiking Home Prices

Home prices are at a record number for a couple of key reasons.

The first reason is that home inventory numbers drastically shrank from what they were even just a year ago. A number of people have purchased homes to settle down for the pandemic. In a world where it might be difficult to participate in activities like shopping, eating at a restaurant, or other social activities, having a home base with enough space to live, and now work, is a must. Additionally, many that may have otherwise sold in a normal year decided to put the big move off until things were a little less uncertain.

The number of homes sold has actually begun to decrease over the past few months, even with the continued increased demand. There are simply not enough homes available for the amount of people searching for them. And when supply becomes more scarce, this naturally pushes prices up.

With more people competing for a smaller number of homes, many areas are seeing bidding wars where they are unfamiliar with this level of demand. It is not uncommon for listed homes to now receive an average of 5 offers, with homes in popular areas receiving five to six times that number. The days of offering a little less on a home are almost a distant memory.

The second driver behind the housing shortage is the new home supply. While you might figure that COVID-19 probably caused some sick days for homebuilders’ employees, the real impetus is the red-hot lumber market. A combination of home projects, worker outages, and overall demand have caused the price of lumber to skyrocket.

This cost will drive some to forgo the incredible construction costs and simply buy an existing home. The lumber supply has also hindered builders from building their homes and otherwise bringing new inventory online.

The last reason homes are priced so high has been the interest rates available to homebuyers and refinancers. We’re coming off of the record-low rates of 2020, but the numbers allowed people to afford more house than ever or refinance their existing mortgage with a low rate, sometimes 200 to 300 basis points lower than they were paying before. 

These low rates provided a great reason for renters to buy homes instead of renting, and they drove a new component in the form of investors. In some areas, home investors have purchased a significant portion of the inventory, amounting to up to 20% of the available inventory.

All of these changes converged to heat up the real estate market. And the changes can be vexing, because interest rates make it first appear more affordable than ever to own a home, until you factor in the increase in cost.

Real Estate 2021: What to Expect

Home buying remains in some short to medium term turbulence. The good news is that most are buying homes that they can afford; the bad news is that there are not many homes that they can afford on the market. Depending on your target area, you may still be able to find a good home at a good price, but you need to move quickly.

This makes the real estate market feel like it is at a fever pitch. However, the reality is that this pace cannot keep going forever. 

If you do need to purchase a home, try to avoid getting caught up in overheated bidding wars. Some options to consider include looking at alternative neighborhoods or reconsidering your wants and needs for your next house. You can also wait a little longer to better prepare yourself to purchase your next house.

With the sales numbers beginning to slow a little, it may induce other potential sellers to list their homes. And while the pandemic is not over, life does seem to be getting back to normal in some ways. 

Ultimately, you can expect the following to likely be the case for the rest of 2021:

• Interest rates look to remain relatively low.
• The real estate market will likely remain a seller’s market.
• Home prices will continue to increase, albeit at hopefully a slower pace.
• Supply should begin to slowly increase.

If you are ready to move on a home, then you need to work with a timely and detailed mortgage broker like Range Lending. With our own time to close in record low territory, we can help you quickly close on your next home. And while our goal remains, as always, to be with every client every step of the home-buying process, our promptness is even more valuable in this brave new real estate market. Get started with us today to see how we can help you!