Low interest rates, pent up demand from 2020, the stock market hitting new highs, and the pandemic’s exodus from cities has help fuel today’s housing shortage. This is great news for sellers but bad news for buyers. Bidding wars are now commonplace, buyers are now waving their inspections and other contingencies, and non-financial incentives are becoming necessary to be the winning bidder. I heard a buyer’s bid included 1 set of season tickets for an NFL team. According to Zillow currently almost half of all home go under contract in less than 1 week.
Will This Last Forever?
Like with almost everything the answer is, NO.
The real question is not if, it is when and how will it end? There has been a liquidity driven buying spree from stocks to big ticket items such as cars, homes, buildings, crypto currencies, etc. But cheap money does not last forever and with rising mortgage rates demand for mortgages are dropping. If 2021 follows the last 10 years we should see the number of home sales decline throughout this year.
What about Housing Prices?
The prices for homes have grown at a record pace, substantially outpacing compensation. At some point buyers will be priced out of their market and will need to look elsewhere or rent. Even with the beginning of the “ending” of the pandemic wage growth is not increasing fast enough to keeping pace with home prices.
New Construction
New construction was substantially curtailed during the pandemic due to shelter in place orders, major delays in permitting and the lack of pre-sales. Since the vaccine rollout began there has been a considerable
amount of construction starts which has led to a scarcity of materials, and for those who can get the materials the costs have skyrocketed. Lumber alone has seen a 5x increase in prices since April 2020.
Over the last week or so we’ve finally starting to see prices drop. These factors have all added to the lack of supply and price increases.
According to Richard Shiller, co-founder of the S&P CoreLogic Case-Shiller home price index, “In real terms, the home prices have never been so high. My data goes back over 100 years, so this is something.” He does not feel that waiting a year will bring down house prices. He goes on to say, “If you go out three or five years, I could imagine they’d [prices] be substantially lower than they are now.”
What About Urban Cities?
Historically suburban and rural areas have provided a more economical housing market. Lower home prices allowed some who were former renters now become suburban owners. As the vaccine has be rolling out and mask mandates are being lifted the hum of the city is getting louder and drawing in more people. Since late last fall urban home prices have started to catch up with suburban increases, seeing double digit annual increase in price growth starting in October and peaking at nearly 20% this April, the largest year- over-year growth rate yet. Redfin expects the trend for double digit growth to continue over the next few months.
With the lack of supply in the suburbs while urban markets have inventory buyers are again considering moving into the cities. I believe that as we as a nation get closer to heard immunity life in the city will flourish again and the people will come.
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