This isn’t the first time the US has seen a strong sales market. Something making it different this time is that the market is extraordinarily strong in every part of the country. Typically, the intense markets are found on the coasts but this time it is almost everywhere with the national average listing price hitting a new high in May 2021 when it reached $380,000 (Realtor.com). That is up 15.2% compared to last year.
How the Summer Market Got So Hot
Let’s look at the main drivers of this unprecedented Summer 2021 Housing Market (it’s a long list):
The sizzling hot 2021 home market very well have reached an affordability peak.
Whether we want it or not, we may be on the cusp of a slowdown. That doesn’t mean it will instantly become a buyer’s market two months from now. However, every day more and more buyers are being priced out of the market. They are giving up. Finally, the home buying frenzy has priced millions of Americans out of the market. The National Association of Home Builders says that approximately 60% of households can no longer afford the median-priced home. Because the brunt of the cost increases had happened at the low end of the market, the number of first-time buyers has no choice but to decrease.
Sellers are recognizing the top of the market. Two-week-old data from realtor.com indicates that more sellers are bringing homes onto the market. Most recently, new listings were up 7% after also rising in March and April after briefly dropping the first part of June. If the rise in listings continues, it can be expected to slightly moderate the feverish price growth over the past year.
Also this week, the Federal Reserve indicated it will be closely scrutinizing interest rates. Currently there is no plan to increase rates, but a closer look reinforces a concern that the economy may be recovering faster than anticipated. A rate hike could come sooner than previously forecast to keep inflation under control.
New home completions were up slightly in May, but new permits were down going into the summer building months. Lumber prices and the labor shortage continues to keep new home building seriously below demand.
A March survey by Fannie Mae indicated more Americans have lost confidence that this is a good time to buy, with buyer confidence dropping by 4%. If this sentiment continues, it means fewer new buyers entering the market at the same time existing buyers are giving up. The expected result can be a slow down in the market.
Key indicators to continue watching are interest rates, inventory, and consumer confidence. The affordability problem may have finally reached the summit. The median U.S. listing house price is expected to go over $395,000 in June. The top end of the market for well-qualified Millennials may very well be a 3-bedroom, 2.5 bath home for $360,000 or less.
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