Today’s hot housing market is one of the more peculiar consequences of the Covid-19 pandemic. Pre-2020, the housing supply was already low and was further hampered as lockdowns began to take place. Experts believe it was due to the rush to move out of cities, lifestyle changes to accommodate working from home, and fear of missing out — people wanted to move closer to their families and loved ones, as well as jump on the selling upswing while it lasted.
Another anomaly was the combination of soaring housing prices and the Federal Reserve’s steps to ensure low mortgage rates. This created an economy where buyers rushed to purchase a new home, even if that meant taking risks, paying more, or forgoing a longer search to find the perfect house. Sellers, on the other hand, were elated with the expedited sales and higher fair market values of their homes.
So, where is the market now?
A Look at the Housing Market
To understand where we are now, we must first look to where we have been.
Home prices nationwide grew by 17.2% in June 2021 compared with June 2020—a record high, according to a CoreLogic report. Another record high was the amount those homes sold for — the market saw more than 50% of homes sell for over asking price.
Unlike past property booms, this one also saw a surge in sales for luxury homes. Purchases of high-end homes increased 26% in the first quarter of 2021 (compared to the same period in 2020), according to brokerage Redfin.
Data from the National Association of Realtors (NAR) also shows a 244.5% increase in the number of home sales in the United States priced above $1 million year over year in May. The trend continued in the summer with little signs of slowing. What does that mean for the autumn season?
What to Expect in Autumn 2021
Historically, autumn ushers in less competition and better deals, but the pandemic altered that trend last year and many cities saw double-digit percentage increases in housing prices.
This fall should be a little more relaxed. Prices are beginning to decelerate as more single-family homes have become available. Additionally, the demand for new homes should become significantly more steady as fewer people are inclined to move before and during the holiday season.
Higher Supply, Steadier Demand
According to the National Association of Realtors, unsold homes rose 3.3% to $1.25 million from May to June this year. The increase in inventory is not enough to satisfy demand in the spring, but it might give buyers hope for the fall season.
More homes should go up for sale in the upcoming months, which will help match the high demand for them. Competition will remain fairly high, but buyers will have a few more options available to them.
The influx of new homes going up for sale likely will not be enough to put a dent in the housing shortage, but it may help curb the wild price growth.
Demand is likely to stay strong as well. More millennials are hitting their prime homebuying years, and builders have been unable to ramp up construction to keep up with the growing population. With rental prices also hitting new heights, many people are seeing that it is cheaper to buy than to continue to lease a home.
Buyer Behavior Is Becoming Less Risky
As demand for houses picked up, buyers have pulled out all the stops to outbid the competition. It suddenly became commonplace to forgo contingencies in the sales contract meant to protect them, and to offer well over the sales price to hopefully secure the sale. Some buyers even used their retirement savings while others were getting loans so they could appear to be all-cash buyers.
This type of behavior is expected to calm down over the next few months as the supply of homes begins to recover.
Mortgage Rates and Home Price Forecasts
Another aspect that is expected to calm down are housing prices. While there is still a housing boom and shortage, the increased demand should help slow the dramatic price increases that swept across the country this past year.
Mortgage rates should begin to increase as we head into fall and into 2022. The mortgage rates on both fixed 30-year and 15-year mortgages have been sitting at record-low averages since last summer, bobbing between the low-3% and mid-2% range. These are expected to stay low, though they may begin to rise to help subdue demand in early 2022.
A Quick Summary of What to Expect
This past year has brought on an unprecedented rise in both home prices and sales in all areas of the market, including luxury homes. In the coming season, the demand is expected to slow slightly while the supply is expected to rise. This will not be enough to dramatically reduce competition and buyers should still expect homes to go quickly.
However, the market is expected to slow down as we round the corner into 2022. We will bring you those updates as they become available, so be sure to follow our blog.