Hot summer home market

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This is not the first time there has been a strong market in the US. Something different this time around is that the market is extremely strong in all parts of the country. Typically, intense markets are on the coast, but this time it is almost everywhere: the average listing price across the country hit a new high in May 2021 when it peaked at $ 380,000 (Realtor.com). This is 15.2% more than last year.

How the summer market got so hot

Let’s take a look at the main drivers of this unprecedented housing market in the summer of 2021 (that’s a long list):

  • Millennials are at the peak of home buying.
  • Mortgage rates have been exceptionally low for a long time, and the Federal Reserve has continued to maintain low interest rates.
  • COVID has transformed our homes into offices, classrooms and shelters from the outside world.
  • Builders were laid off during the pandemic – very few new homes were built.
  • Lumber prices are exceptionally high and continue to rise. The estimated cost of building an average home has increased by $ 80,000.
  • Many large developers have slowed production in anticipation of stabilization of the costs of doing business. (Some return deposits because they cannot build – these are the previously quoted prices).
  • Inventories are priced at a very low supply of 2.4 months at current sales rates.
  • Currently, the number of houses for sale is about half compared to the winter season, which is traditionally much slower.
  • Due to the high cost of buying a new home, many potential sellers have decided not to sell their current home.
  • All consumer spending is skyrocketing (inflation).
  • Inflation is increasing pressure to raise interest rates. Raising the interest rate from 2.75% to 3.25% will reduce the purchasing power of a home buyer by an average of $ 23,250.
  • Accumulated travel demand is forcing consumers to spend more on flights, vacations, family visits, and entertainment – less savings for home.
  • The increase in pandemic stimulus is mostly reflected in the rearview mirror (net of savings on down payment).

The hot domestic market in 2021 has approached the peak of affordability very well.

Whether we like it or not, we may be on the verge of a recession. This does not mean that in two months it will instantly become a buyer’s market. However, every day more and more buyers leave the market. They give up. Finally, the home buying frenzy has driven millions of Americans out of the market. The National Association of Home Builders states that roughly 60% of households can no longer afford average-price housing. Since the brunt of the cost increases fell on the lower end of the market, the number of new buyers has no choice but to shrink.

Sellers recognize the top of the market. Data from realtor.com two weeks ago shows that more and more sellers are bringing home to the market. Most recently, new listings were up 7%, following gains in March and April after a brief drop in the first half of June. If quotes continue to rise, we can expect that this will slightly soften the feverish rise in prices over the past year.

Also this week, the Federal Reserve said it will closely monitor interest rates. There is currently no plan to raise rates, but a closer look heightens fears that the economy may recover faster than expected. The rate hike could come earlier than previously predicted to keep inflation under control.

Completion of new home construction increased slightly in May, but the number of new permits dropped prior to the start of the summer construction months. Lumber prices and labor shortages continue to keep new builds below demand.

Fannie Mae’s March poll showed that more Americans lost confidence that now is a good time to shop, with consumer confidence falling 4%. If this sentiment persists, it means fewer new buyers are entering the market while existing buyers are giving up. The expected result may be a slowdown in market growth.

The key metrics to watch out for are interest rates, inventory and consumer confidence. The accessibility issue may have finally reached its top. The average US listed home price is expected to exceed $ 395,000 in June. The top end of the market for high-end millennials may well be a 3-bedroom, 2.5-bathroom home for $ 360,000 or less.

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In addition, our weekly Ask Brian column welcomes questions from readers of all levels with experience in residential real estate. Please send your questions, inquiries or article ideas to askbrian@realtybiznews.com

Photo Tuche on the Unsplash

Author biography: Brian Kline was investment in real estate for over 35 years and has been writing about investing in real estate for over 12 years. He also has over 30 years of business experience, including 12 years as a manager at the Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A place to stay, close to the country and the Pacific Ocean.

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