Even if you’re not looking to buy or sell a home, I’m sure you’ve heard how unsettled the housing market is right now. Bidding wars driving up housing prices, homes going under contract within days of hitting the market, buyers waving contingencies to secure a home, the list of crazy scenarios goes on and on. If you' re someone who doesn’t follow the markets ebbs and flows, it may appear that COVID-19 caused this entire situation but really, the market has been strengthening for the last few years and the pandemic was that final push that led to the madness.
The four key topics that control the housing market are, real-estate prices, housing affordability, interest rates, and inventory, all of which are correlational. Right now, interest rates are low which is driving up house affordability as well as putting a lot more buyers in the market, ultimately causing a decrease in inventory and increased real estate prices.
Interest rates have been a major factor controlling the market through 2020 and into 2021. Freddie Mac reported that interest rates have been declining since November of 2018 and they have continued to decline and hit record lows through 2020 and 2021. The three most popular loan types 30-year fixed, 15-year fixed, and 5-1 ARM, hit all-time lows in early January of 2021. Although rates have been on the rise since their January low point, they are still incredibly low in comparison to the 3-to-5-year average.
These incredibly low interest rates have a direct effect on housing affordability. Your monthly mortgage payment is made up of principal, interest, insurance, and taxes. The interest rate you lock in when entering a mortgage plays a crucial role in your monthly payment. The lower your interest rate, the more house you can afford. Homes are more affordable when interest rates are low because buyers have the ability to take on a larger monthly payment.
As interest rates remain low and homes become more affordable, inventory tends to decrease. In the first few months of 2021, there were 30 fewer homes for sale than in the first few months of 2020. So, what does that mean If you’re in the market to buy a house, you had better be on your toes because homes are selling quickly Reports from April 2021 show that homes are on the market for 20 days less than this time last year and the average home is only on the market for sale and pending for 43 days. From 2017 to 2019, the typical time a house was on the market was 61 days. In regards to geography, homes are moving most quickly in the Northeast, followed by the South, Midwest, then the West. Inventory is at record low numbers because homes are selling so fast. The number of homes on the market or pending is down 21.9% compared to April of 2020. With homes moving so quickly, buyers are willing to pay more for the homes that are available.
The current market is a high demand, low supply situation that is driving prices up to record highs. Realtor. com reported that the median national home price is currently 17.2% higher than it was last year, at 375,000. Larger metro areas have been hit even harder than the national average, with Austin, TX seeing a 40.6% increase in median list prices compared to 2020.
Inventory has actually been fairly low over the last few years and the pandemic has only worsened the situation. Redfin reported that nearly two thirds of buyers faced a bidding war in the month of March 2021. Even some sellers received over eighty offers within just a few days of listing their home. There is hope for buyers as we continue to move into 2022 because experts are reporting that through the rest of 2021 and into 2022, inventory is expected to grow.
There are a few factors that will assist with the housing market as we move more into 2022. The foreclosure moratorium ended at the end of June. In early 2020, the federal government stepped in to ensure that Americans could stay in their homes during the global pandemic. On February 16, 2021, President Joe Biden extended the Foreclosure Mortarium, banning foreclosures and mortgage forbearance options for anyone holding an FHA, VA, or USDA loan. This extension protected homeowners until June 30, 2021, which was originally set to expire on March 31, 2021, now allowing mortgage holders to pause payments for a total of 18 months. Current mortgage data, reported by CNBC shows that 2.1 million homeowners have suspended their mortgage payments and an additional 1.18 million homeowners are at least 90 days behind on their mortgage payments. In 2021, foreclosures are down 80 which means there will be an inevitable flood of foreclosures on the market.
Buyers are going to extreme measures to secure a home in this crazy market. Many buyers are waiving contingencies, leasing back the home they purchase, and even paying cash. Many buyers in this market are not in the situation to do any of these, especially millennials who are just now entering the market for their first home. Ultimately, this is one of the toughest markets that we've seen in the history of real estate, but the hope is that by the end of the year there will be more inventory while interest rates remain low.
