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What Does a Cooling Housing Market Feel Like?
It's the start of the traditionally zany busy season, but some agents are asking: Is the housing market cooling? Real estate agents, housing economy experts, and consumers are still facing higher-than-normal demand, but there are indications that the housing market – red-hot since 2020 – may finally be tapering. What does a cooling housing market feel like? What should you and your clients be on the lookout for when judging whether the price and demand of homes is leveling off? Every local market is unique, but wherever you are, there are four indicators about whether your housing market is cooling or remaining ultra-competitive: 1. Reduced Prices for Local Home Listings The first indication that your local housing market could be cooling is if you and your clients notice lower prices for local homes listings. Low borrowing costs meant to cushion the effects of the COVID-19 pandemic rose housing prices by 35% in the past two years. Now, with the Federal Reserve raising interest rates to fight decades-high inflation, consumers in your market may be willing to pay less for homes, driving down the price. Beyond simply lower home prices, look closely at whether a trend of reductions in price develops. If sellers are routinely marking down the price of homes already on the market, it's an indication that your market is cooling and becoming more buyer-friendly. 2. Fewer Mortgage Applications Before buyers purchase a home, they have to apply for a mortgage. So, one indicator about the housing market's competitiveness comes from the number of mortgage applications. Overall, mortgage applications dropped 8.3% in the last week of April. This decline in mortgage applications may reflect a general softening in buyer demand homes. But a lower number of mortgage applications may also derive from a limited number of homes on the market. Either way, keep an eye on the number of mortgage applications in your market. If mortgage applications are tumbling, the housing market may be tapering. If mortgage applications in your market maintain or even increase, your local market is likely still red-hot. 3. More Homes on the Market If there's one situation homebuyers and their agents are likely to have experienced in recent attempts to purchase a property, it's a paucity of homes on the market. Indeed, home listings are at a record-low, and even with rising mortgage rates and sky-high home prices, a limited inventory of available properties has kept the real estate market competitive. If you notice a wider available inventory of properties, the housing market may finally be cooling. More available homes would tamp down bidding wars and perhaps compel sellers to list their homes at lower prices. Of course, there is typically an influx of listed properties in the spring and summer – so keep a close watch on how long those listings stay on the market, and whether the price they sell for is higher or lower than the initial ask. 4. Lighter Attendance at Home Tours and Showings It's important to crunch numbers and monitor trends. But as an agent, one of the biggest advantages you possess is the ability to use your own eyes and ears to gauge the state of your local market. In particular, you should keep a close eye on attendance at local home tours and showings. Maybe you are hosting these showings yourself, or maybe you're attending with a prospective buyer – either way, pay attention to how many people are there and the questions they ask. Is turnout down significantly from where it was in February, or even last summer? Are people making aggressive, cash-heavy offers to purchase the home, or do they seem to be weighing multiple options? Use your own common sense to determine whether your market is cooling and what advice to give buyers and sellers this busy season. To view the original article, visit the Homesnap blog.
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Is Housing Inventory Finally About to Rise?
Ask just about anybody who has tried to buy a home recently: There simply aren't enough houses on the market for every interested and qualified buyer. Housing inventory has been – and remains – at a record low. That's been good for homeowners who want to sell at the highest possible listing price, and tough for buyers who want access to a range of affordably-priced properties. But after two years of persistently low housing inventory, a shift may be on the horizon. Is housing inventory about to rise? Or will other economic factors mean that the number of available homes remains scarce? Learn why some experts believe housing inventory is on the verge of an increase and others expect it to stay low for the foreseeable future. Yes, Housing Inventory is Recovering There are some indications that housing inventory is on the cusp of an increase. For one, surveys of prospective sellers demonstrate that about two-thirds of homeowners who plan to sell their home this year expect to list by the end of summer. This expected influx of listed homes may represent a changed housing market from the recent past. In 2020 and 2021, the housing market was less tied to traditional home buying deadlines, such as the start of the school year or the need to move in order to start a new job. For many people, life has now returned to normal. Going to work, sending kids to school, and the desire to tour homes in-person may result in a more traditional 2022 busy season, in which home inventory surges during late spring and summer. At the same time sellers prepare to list their properties, buyers are beginning to grapple with increased mortgage rates. The Federal Reserve set ultralow interest rates at the start of the COVID-19 pandemic. Now, those rates are being steadily raised, resulting in higher fixed mortgage rates. Rising mortgage rates have the practical effect of making it more expensive to purchase a home – pricing out some buyers, and raising the odds that homes sit on the market. The final reason housing inventory may tick up is simple: It appears that more homes are being built. Home building was low in the years after the late 2000s housing bubble crash and subsequently depressed by the COVID-19 pandemic. But homebuilding is at last increasing. Last month, U.S. housing starts (the beginning of private home construction) increased at 0.3% – an unexpectedly robust rate that could signal a home building boom. No, Housing Inventory Will Stay Low For all the reasons to be optimistic, a rise in housing inventory still faces stiff, substantial headwinds in 2022 and beyond. To start, supply-chain issues continue to throttle new home construction. Basic building materials, most notably lumber, have been hard for homebuilders to obtain and afford. Homebuilders have also struggled to attract and retain skilled tradespeople in a red-hot job market – reducing the number of new homes they can build. Inflation, which is at its highest rate in 40 years, may also constrain the supply of homes. Inflation makes it more difficult to build homes, as the price of materials remains high. Plus, some homeowners may be disincentivized to sell in a time of heightened inflation, as homeownership is a traditional safe harbor against devalued currency. Finally, housing inventory may not expand because of high buyer demand. While there are signs that buyer demand is slightly cooling, the demand for homes continues to outstrip supply in many markets. And higher mortgage rates could actually spur some buyers into the market this spring and summer, as they attempt to secure a decent rate while they still can. If there are more qualified buyers than available homes, properties won't sit on the market for long, and overall housing inventory is unlikely to increase. To view the original article, visit the Homesnap blog.
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Why Are Things So Tough for First-time Homebuyers?
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Are We in a Real Estate Bubble?
Mortgage rates are rising fast, the Federal Reserve is hiking interest rates, and people are starting to ask: Are we in a real estate bubble? You can't blame buyers, sellers, agents, and everyday consumers for wondering whether the housing market has become overhyped. After all, economists at the Federal Reserve Bank of Dallas published a blog post last month detailing "growing concern that U.S. house prices are again becoming unhinged from fundamentals." "Unhinged from fundamentals" sounds scary. Is there a housing bubble that's about to burst? For now, real estate experts and economists generally aren't concerned that the hot housing market is going to implode the way it did when the 2008 subprime mortgage crisis sparked the Great Recession. But they are sharply divided about whether there's a real estate bubble, what could be fueling it, and the events that might signal a cooling or collapsing housing market. Yes, There's a Real Estate Bubble Even for people who aren't prone to doom and gloom, recent indications point to the possibility of a real estate bubble. The most-often cited indication of a housing bubble is mortgage and interest rates. Specifically, mortgage and interest rates plunged to record-lows as the federal government sought to limit the economic fallout of the COVID-19 pandemic. Because of those low rates, people flooded into the housing market, driving up demand and the price of homes. Now, the federal government is raising interest rates, which has caused the 30-year fixed mortgage to climb above 5% for the first time in a decade. Traditionally, higher mortgage rates result in lower or cooling housing prices. But, as we suggested last month, some consumers may figure if mortgage rates continue to rise, this is the time to lock in a decent rate, which could keep demand for homes strong. Another factor that could be fueling a frothy housing market is the influence of real estate investors. Investors now buy about one-third of homes in the U.S., and are often able to make cash offers on homes that normal buyers cannot match, which drives up home prices. Rising inflation may spur even more aggressive buying behavior by real estate investors, as real estate is traditionally a safe harbor against less valuable currency. If investors continue to buy, everyday consumers may find themselves forced to agree to mortgage rates and home prices that are divorced from traditional market fundamentals. No, We're Not in a Real Estate Bubble For all the concern, many experts and agents don't believe that there's a real estate bubble. First and foremost, low housing inventory has resulted in a supply and demand mismatch that many believe is the single biggest source of rising housing prices. In the wake of the late 2000s housing crisis, home building plunged. Over time, there weren't enough homes available for interested and qualified buyers. Low inventory isn't an issue that experts expect to be resolved soon. The cost of housing materials has skyrocketed due to supply-chain issues, inflation, and the war in Ukraine. Plus, millennials, the U.S.'s largest generation, are in or entering prime home buying age, which some experts think will ensure housing demand remains higher than supply. The other primary reason to be skeptical of a housing bubble is the average personal financial health of home buyers. On average, Americans are in their strongest-ever financial situation, with record-high savings and record-low debt. In the run-up to the last housing crash, excessive borrowing was rampant and many people were granted mortgages they couldn't actually pay. Now, economists and real estate agents report that buyers are purchasing homes with significant cash down payments. Coupled with stronger lending guidelines, robust personal financial health means that people who are buying homes today are more likely to make their home payments, reducing the odds there's a real estate bubble. As an agent, be prepared to answer client questions about whether there's a real estate bubble. Keep a finger on the pulse of your local market, encourage buyers to come with strong, cash down offers, and remind sellers that whether there's a bubble or not, this is a great time to sell a home. To view the original article, visit the Homesnap blog.
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Will Housing Prices Ever Stop Rising?
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[Best of 2021] When Will U.S. Buyers See Relief from Skyrocketing Home Prices?
Here it is--our top article of the year! This article was originally published back in June and is the most read article of 2021. See #2 here, or read the full list of our Top 10 articles from 2021 here. Home prices usually follow the laws of supply and demand: when demand is strong, supply diminishes, and prices rise, creating an incentive for owners to sell and builders to build. As the supply of homes for sale increases, those high prices moderate or decline. But, on a year-over-year basis, U.S. home prices have increased for an astounding 110 months straight; and since the pandemic began, they've risen at an extraordinary pace. Just this past April, the median home sales price in the U.S. was $341,600, nearly 20% higher than the year before. So when can buyers expect to see some much-needed home price relief? Too Much Demand, Not Enough Supply The issue with the law of supply and demand lately has been…well…not enough supply and too much demand, especially surrounding new home builds. Builders can't keep up with new home demand due to shortages of materials and appliances, along with skilled labor. Lumber prices alone are more than 250% higher than last year, and are adding nearly $36,000 to the average cost of a new build. The extreme supply shortages have driven up the median price of new homes to $372,400, the most substantial annual gain since 1988, when prices rose 87% in one year. New home builds aside, we're also seeing two of the largest generations in history — millennials, and Generation Zers, reach homebuying age and ability. More than 80% of millennials plan to buy a home at some point in their lives, and last year, 39% of all homebuyers were younger than 40. Mortgage rates below 3% ignited the generational pressure to purchase, and home sales surged to the highest level since 2006, despite pandemic challenges. Record sales quickly drained available inventories, and by the end of 2020, supplies of homes for sale were the lowest since 1999, when the National Association of Realtors first kept inventory records Now, inventory is so low and prices so high that sales are finally starting to slow, falling for the third straight month in April. (READ MORE: How Are Sellers in the Current Market REALLY Doing?) Can the Drought Get Any Worse? Even though record numbers of millennials are entering the market, it's not a journey some want to take with seemingly no home price relief in sight. Buying a first home is so expensive today that nearly one out of five prospective millennial buyers say they are giving up on homeownership and plan to rent for the rest of their lives. Will their sitting out the market help ease inventories? Not likely, at least not right now. There's no sign that the laws of supply and demand can restore balance to the real estate economy any time soon, and it may be just a matter of time until the inventory drought shuts sales down to a trickle. Still, there are some positive signs that demand will decrease and supplies will increase enough to bring some home price relief: Mortgage Rates Should Increase, Tempering Demand-driven Price Hikes Home price relief won't happen until mortgage interest rates rise and home supplies improve. For two years, forecasters and mortgage companies have said that higher rates are just around the corner. This year, they may be right. Inflation is suddenly surging for the first time in decades, and Fannie Mae's economists predict housing could contribute more than two percentage points to inflation by the end of 2022. The forecasted rates on a 30-year fixed mortgage will reach 3% by mid-year and stay above 3% through 2022. The Mortgage Bankers Association sees rates reaching 3.5% by the end of 2021, and 4% in the second quarter next year. New Home Starts Are Up The inventory of previously owned homes reached record lows in April, but on a year-over-year basis, housing starts (new homes being built) in March surged to a nearly a 15-year high, and April starts were 67.3% higher than they were in April 2020. Fannie Mae forecasts an aggressive 16.3% increase in single-family home construction this year over 2020, but that increase in new homes amounts to about 2.4% of demand — far below what is needed to meet it. As Price Appreciation Slows, Sellers Will Become More Motivated Just as the fear of higher mortgage rates motivated buyers in 2020, the fear of falling prices driven by rising rates will motivate sellers. As a result, listings may begin to increase on a year-over-year basis in the first quarter of 2022, when sellers prepare for the spring sales season. Baby Boomers, who own 41% of the nation's homes, have been much slower than earlier generations to downsize as they age. Millions of Boomer homeowners lost more than a decade of appreciated equity after the housing crash in 2007, and many are waiting until prices peak to sell and regain as much equity as possible. In last year's price boom, older Baby Boomers sold their homes at a higher rate than any other age group. When it's clear that the current boom has run its course, more Boomers will be listing their homes for sale. The Experts Forecast Significant Changes in Prices by 2022 Economists at Fannie Mae and Freddie Mac and several of the best real estate data and analytics firms forecast changes in market trends two years in advance. As of May, Fannie Mae forecasted that the median national price will rise 9.5% for new homes this year but only 4.4% in 2022. Home prices will continue to grow at 12.2% this year and 3.9% next year for existing homes. As of April, Freddie Mac forecasted that the price boom would end this year. Freddie's experts forecasted that all home prices, new and existing, will increase only 6.6% this year―a decline from 11.3% in 2020―and 4.4% in 2022. The respected real estate analytics firm CoreLogic agrees that home price increases will slow down this year, reporting that median year-over-year national price increase will fall to 2.8% by April 2022. Lawrence Yun, chief economist at the National Association of Realtors, also agrees. "We'll see more inventory come to the market later this year as further COVID-19 vaccinations are administered and potential home sellers become more comfortable listing and showing their homes," said Yun. "In addition, the falling number of homeowners in mortgage forbearance will also bring about more inventory." "Despite the decline, housing demand is still strong compared to one year ago, evidenced by home sales from this January to April, which are up 20% compared to 2020. Moreover, the additional supply projected for the market should cool down the torrid pace of price appreciation later in the year," Yun said. The Bottom Line Mortgage interest rates are the critical factor driving housing demand. It's more than likely that by the end of this year, rates could drive upwards of 4% or higher. Sellers, led by Boomers eager not to miss the price peak, will bring a modicum of relief to the inventory shortage. In 12 months, the rate of price appreciation for single-family homes will be half its current rate of 19.1%, if not lower. By then, inventories will improve but won't return to healthy levels until pent-up demand is met and new home construction makes a more significant contribution. So while we can't expect to see home prices fall, we can expect their increases to slow down significantly. Steve Cook is the editor of the Down Payment Report and provides public relations consulting services to leading companies and non-profits in residential real estate and housing finance. He has been vice president of public affairs for the National Association of Realtors, senior vice president of Edelman Worldwide and press secretary to two members of Congress. To view the original article, visit the Homes.com blog.
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Is October the Best Time to Buy a Home?
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How to Identify and Track Your Real Estate Competitors
We all face competition in life. As a real estate agent, you're no stranger to the tough process of the competition. Regardless of the difficulties that competition might bring us, it's important to realize that competition is a healthy way to drive the progress of the real estate industry in general and your real estate brand specifically. But what makes you stand out and succeed in regard to your competitors is realizing your strengths and weaknesses as well as those of your competitors. This is why it's important to conduct a comprehensive competitive analysis and research your potential real estate competitors. Let's talk about the principles of competition. There are two types of competition: direct and indirect. So who are direct and indirect competitors of real estate agents? Direct - Direct competition consists of businesses that offer the same service as your brand. So in the case of real estate agents, they are in direct competition with other real estate agents. Indirect - Indirect competitors, unlike the direct ones, don't offer the same service, but they still meet the same needs with an alternative way. For example, real estate agents' indirect competitors can be services like for-sale-by-owner. Knowing your indirect competitors is as important as knowing the direct ones. It helps you to further the knowledge on why people choose or opt out of choosing your services. How Can You Identify Your Real Estate Competitors? After identifying your main competitors an important task falls on you to track them. Here's the criteria you should pay attention to: Real Estate Keywords Check what keywords they are targeting for organic and paid search. Knowing what keywords your competitors are targeting, in addition to knowing the general trends, will help you to identify what your competitors are lacking in terms of keywords. Tools like SpyFu can help you understand what your competitors' main keywords are. It's really hard to surprise and engage visitors because of the huge abundance of digital content. That's why content that is shared means your competitors found some niche that wasn't explored yet. Research it, and take your time to analyze why this content is shared. Try to understand it, but don't copy. Google Alerts Google is one of the most popular search engine platforms out there. People strive to make their content rank on at least the first page of Google, if not appear in first place. This is the ultimate goal of every successful business. This can be achieved with a certain amount of luck, but most importantly by being constantly aware of the current trends in your industry and being mindful of competition. Google Alerts helps you to achieve both. It can help you to know what other publications are writing about your competitors, what content pops up for certain important keywords, or even what others write about you. Knowing your backlinks is one way to understand where your SEO efforts are lacking. When you know your own backlinks and understand your competitors' backlinks, you can determine where you need to strengthen your marketing efforts. Tools like Ubersuggest and SEO Explorer can help you with that. Manual Checking In addition to checking your competitors with certain tools, you should also do manual research. The simplest thing to do is check Google with the keywords you want to rank with. Check who's taking first place. That might be an indicator of whether they're your direct or indirect competitors. Pay attention to local searches. You want to rank locally, so use keywords like "real estate agents near me," to help determine who your real estate competitor is, and optimize your own Google My Business profile. How to Track Your Real Estate Competitors and What to Pay Attention to Social Media Social media is one of the most important channels to connect with your potential and existing clients. Knowing the general trends in the real estate market and how your competitors are using social media will make your social media plan more comprehensive. Real Estate Blogs Even though visual content is what people are gravitating towards these days, blogging is still as popular as ever. Blogging brings necessary traffic to your website, while providing useful information to your visitors. Knowing what your competitors are writing about can spark creativity and give you new, fresh ideas to write about. But remember, even though copying is sometimes considered a form of flattery, this is not the case when it comes to digital content. Blogs can inspire you to create content of your own, but don't copy them word for word. Real Estate Newsletters Email marketing is a time tested method to engage and connect with your audience. It's an efficient way to deliver important messages and updates. If your competitors have a newsletter subscription form, subscribe to see what kind of emails they're sending. This will also give you an idea of a new newsletter campaign. Client Reviews Understanding how your competitors communicate with their clients will help you to identify your strengths and weaknesses and improve your own customer service. Knowing what your competitors' clients lack means you can fill that niche and offer a better service. Tools That Help You to Track and Identify Your Competitors Ubersuggest - Website traffic, SEO explorer, keyword analyzer and much more Alexa - Has a free option for site info and showcases the website rank and compares websites that are determined to be competitors Ahrefs - Has a free option to check domain ratings and showcases website authority (the higher DR you have, the better) SpyFu - Comprehensive keyword analyzer Google Alerts - To know what others say about your competitors, set up a Google Alert for specific keywords Social Mention - Helps you to identify what people on social media say about your brand or your competitors Google Keyword Planner - Also can be used to identify keywords of your competitors, and since the data comes straight from Google, it means the data is more accurate Semrush - Another great tool for checking keywords To view the original article, visit the Realtyna blog.
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When Will U.S. Buyers See Relief From Skyrocketing Home Prices?
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Why Builders Can't Keep Up with Home Sales
Once upon a time, the key words in real estate were "location, location, location." Then, the infamous three Ls, at least in the new construction sector, became "land, lots and labor." Those Ls remain important, to be sure. But now, as far as builders are considered, the Ls refer solely to "lumber, lumber, lumber." Softwood is used in structural framing such as beams, joists, and trusses as well as sheathing, flooring and underlayment, interior wall and ceiling finishing. Softwoods also are used in certain manufactured products, particularly cabinets, windows and doors. Since April 2020, the cost of softwood lumber has risen more than 300%, adding nearly $36,000 to the price of a typical house, according to the National Association of Home Builders. The Factors Behind Surging Lumber Costs The primary reason for this price surge is insufficient production at mills across the country. Like most other businesses, pandemic stay-at-home orders greatly impacted the ability to produce products in sufficient quantities to satisfy demand. And even though operations around the country have increasingly opened back up, many mills are still not back to pre-pandemic capacities. Another factor is the import duties placed on Canadian lumber during the previous administration. And now, in a step that has brought a strong rebuke from NAHB President Chuck Fowke, the current administration is proposing to double the tariffs on Canadian lumber shipments. What Else is Stifling Builders' Production? While the cost of lumber is builders' most pressing problem, it is hardly the only one. Here's a brief rundown of the other issues that are keeping them from erecting all the houses needed to take some of the heat out of the blistering housing market: Availability Builders rarely have trouble securing appliances, which they must have to obtain occupancy permits. But now, 95% of those polled by NAHB reported shortages of refrigerators, stoves and the like. Shortages are now more widespread than at anytime sine the 1990s when the NAHB first started tracking. Skyrocketing lumber prices have rightfully dominated the headlines, but prices for steel, concrete and gypsum products also continue to climb at record pace. In a recent survey by marketing and advisory firm Zonda, which monitors some 18,000 active communities nationwide, 86% of builders reported significant supply disruptions resulting in significant construction delays. Among the components that are tough to obtain are interior doors, windows, siding, plumbing fixtures, shingles, insulation and cabinets. About the only item builders aren't having a hard time finding are kitchen sinks — as in, "everything but…" Practically everything else is in short supply; again because production was severely curtailed during the height of the pandemic. And as a result, the costs to builders for many of the products they need have also rocketed. Regulation Another NAHB study found that regulations imposed by all levels of government account for $93,870, or 23.8% of the average sales price of a new house, which is currently $397,300. Of that, $41,330 is attributable to regulation during development, and $52,540 is due to rules that must be followed during construction. Because of the pandemic, builders and their customers aren't getting all they are paying for, though. At least not lately. Local building departments are so short staffed that it is taking longer to get plans approved and the required inspections made. There are other regulatory issues that builders must contend with, too. The most recent was a change in the National Electrical Code, a change that caused HVAC systems to fail. The new rule, the NAHB contends, was hastened unnecessarily during a process that was manipulated by special interests, perhaps trying to sell a particular product. Land "Builders are paying stupid land prices," Zonda's Tim Sullivan told his clients recently. But they almost have to if they want to remain in business. Why? Because the supply of home sites is dwindling rapidly. Zonda says roadwork has commenced on just 165,000 lots nationwide. Considering that some 500,000 new homes are sold annually, that's not a lot. Builders tend to believe the lot pipeline will be most constrained for the rest of the year, but about a third of those polled said finding buildable sites will be an issue next year as well. "The under supply isn't going to go away," said Sullivan. Location Remember the original three Ls? Forgetaboutit. A community's relationship to downtown used to be much more important, but it hardly matters these days in the new home market. Zonda research shows that 70% of the best-selling communities are 30 miles or more from their central business districts as builders move farther and farther out to hold the line on prices as best they can. In Houston, for example, properties within 10 miles of downtown are notching 1.1 sales per month while those 30-35 miles out are grabbing 4.3 deals monthly, up 118%. (READ MORE: Which Markets Will See New Home Builds Ease Inventories?) Higher Prices Zonda's research shows 97% of builders have raised prices, half of those by $10,000 or more. But, said the company's chief economist, Ali Wolf, "There's virtually no sticker shock." Even as builders restrict supply, prices continue to march higher. One reason: The market is supported in large measure by out-of-towners moving from places where housing prices are out of this world. For example, a 2,500-square-foot house that costs $1.16 million in San Francisco or $1.14 million in Los Angeles runs a mere $450,000 in Austin. That's why locals are buying farther and farther out, where the prices are the less expensive. Labor Experienced carpenters, plumbers, electricians and other tradespeople are in short supply. But only 49% of builders said that's a big deal right now, probably because they're beset by other, more pressing problems and because they're not erecting houses as fast as they'd like. Slowing Down To protect against getting too far ahead of themselves, a majority of builders are "by design" now taking only a specific number of contracts per month. While 9% said it's still business as usual, 17% said they are accepting offers only as new lots come online, and 13% said they are "pausing" sales or reservations. As a result, new home production slid in April and is likely to continue slowing. Supply constraints, labor scarcity and a lack of buildable lots "are weighing meaningfully" on builders' ability to keep up with housing demand, says Doug Duncan, chief economist at Fannie Mae. Builders, he adds, have little choice but to slow the pace of construction. Syndicated newspaper columnist, Lew Sichelman has been covering the housing market and all it entails for more than 50 years. He is an award-winning journalist who worked at two major Washington, D.C. newspapers and is a past president of the National Association of Real Estate Editors. To view the original article, visit the Homes.com blog.
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How Are Sellers in the Current Market REALLY Doing?
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Spring 2021 Housing Market: Will the Extremes Calm Down?
The 2021 spring housing market can be summed up to two extremes better suited for a primetime TV medical drama than an economic snapshot: the sellers market is on steroids, while the buyers markets are on life support. Why so extreme? Real estate laws of supply and demand dictate that rising demand reduces the number of homes for sale and increase prices. Higher prices then motivate sellers to sell, opening greater supplies of inventories and reducing the pressure on prices. Moderated prices and more homes for sale encourage buyers to buy, and sales increase until supply and demand start their familiar dance all over again. That's how things are supposed to work. Except, moving into the spring 2021 housing market, they aren't working that way at all. Soaring prices and starving inventories aren't motivating enough sellers to sell, nor are they discouraging many buyers from buying. So, we're left with a pair of extremes, whose forces are stronger than supply and demand, and twisting housing markets out of shape. Fear Worsened the Inventory Drought Even before the COVID-19 pandemic and current recession, the housing market was facing a substantial supply shortage. Afraid of missing out on the lowest mortgage interest rates in a generation, extraordinary numbers of millennial first-time buyers jumped into the markets in the first weeks of the pandemic's arrival in March 2020. However, millions of sellers delayed listing their homes at the launch of the spring 2020 sales season. By July, high demand and low supplies drove sales prices to an all-time high, and inventory levels plunged 21.1% below 2019 levels, marking 14 straight months of year-over-year declines. Inventories Are Still Disastrously Low Fast forward to the end of February 2021, housing inventory was a record 29.5% lower than a year earlier. Buyers quickly consumed the new listings, and time on the market fell to 20 days for a home to go from listing to contract, an all-time low. At the end of March, total housing inventory amounted to 1.07 million units, up 3.9% from February but still down 28.2% from one year ago. Unsold inventory stayed at a 2.1-month supply, marginally up from February's 2.0-month supply and down from the 3.3-month supply recorded in March 2020. Inventory numbers continue to represent near-historic lows since NAR first began tracking the single-family home supply in 1982. In fact, according to the National Association of Realtors, the U.S. housing market is short about 3 million available homes. New Home Production is Still Struggling Looking beyond the spring 2021 housing market itself, a more enduring problem is the chronic underproduction of new homes. For five decades, America's supply of entry-level homes has declined. Production of entry-level construction fell from 418,000 units per year in the late 1970s to 65,000 in 2020. According to NAR's Lawrence Yun, new-home underproduction is the chief cause of today's inventory shortage. Freddie Mac's chief economist, Sam Khater, agrees. "Simply put, we must build more single-family entry-level housing to address this shortage, which has strong implications for the wealth, health, and stability of American communities," Khater says. Typically in a recessionary time (such as the pandemic), housing demand declines and supply rises, causing inventory to rise above the long-term trend. Khater believes the main driver of the housing shortfall to be the long-term decline in the construction of single-family homes. When falling rates led to higher demand, supplies could not keep up, and by late 2020, prices soared at a double-digit pace. Shortages of affordable homes brought the pandemic sales boom to a halt. Sales fell 6.6% from January 2021 to February, and supplies did not increase during February, a month when sellers traditionally begin to list their homes for the spring sales season. Rates and Prices Will Slowly Rise During the Year So far, the spring 2021 housing market has been a mixed bag. During the first quarter of 2021, rates on a 30-year fixed-rate mortgage stayed below 3% percent until the first week of March. By April 1, however, they reached 3.18%, which lowered the house-buying power of consumers enough to cost 55,600 potential home sales, according to First American's chief economist Mark Fleming. Freddie Mac's forecasters expect rates to continue to rise slowly and reach an average of 3.4% in the fourth quarter of 2021, as the economy slowly recovers from the pandemic. What We Can Expect Moving Forward As long as the economic outlook post-COVID is optimistic, interest rates should go higher. Despite the nation's continued economic uncertainty, demand drivers will continue in 2021, and rates, though starting to increase, will still remain very low. A gradual return to normalcy will raise incomes, and lenders will discontinue some of their pandemic-era restrictions. More millennials and Gen Xers will enter the market, especially with those low rates. Freddie Mac's forecasters expect the rate on a 30-year fixed mortgage rate to average 3.4% by the fourth quarter of 2021, rising to 3.8% in the fourth quarter of 2022. Fannie Mae forecasts that housing starts will rise 17% by the end of the second quarter over last year's poor performance, then 4.7% in the third quarter. The massive shortfall in unsold inventory will continue, especially for affordable starter homes. Supplies are at record low levels this spring, and they will not normalize until new construction can meet the demands of a growing population. For now, the spring 2021 housing market is just one snapshot of many in a tale that is poised to get worse before it gets better. Steve Cook is the editor of the Down Payment Report and provides public relations consulting services to leading companies and non-profits in residential real estate and housing finance. He has been vice president of public affairs for the National Association of Realtors, senior vice president of Edelman Worldwide and press secretary to two members of Congress. To view the original article, visit the Homes.com blog.
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Friday Freebie: 2020 Real Estate Market Outlook
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Product Review: RBIntel
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HomeGain Releases 2nd Quarter 2011 National Home Values Survey Results
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How Branding Builds Trust and Familiarity for REALTORS®
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