Not a Normal Housing Market
The housing market has been everything but normal this year and that is not changing anytime soon. The market is still very enthusiastic recently with demand still strong and the supply of housing still low but improving modestly. I want to break down the reasons why we are still in an unusual market and are not near our “normal” pre-pandemic market.
#1. Supply of Inventory Every Month
Months’ supply is the number of months that the inventory of homes in the market take to sell, depending on the current sales pace. In the past, the average is 6 months of supply that is associated with moderate price appreciations. Currently, the months’ supply of inventory is 2.6 months which is less than half of a normal supply.
Credentials: https://www.nar.realtor/newsroom/existing-home-sales-climb-2-0-in-july
#2. Mortgage Rates
Mortgage rates are not at their normal numbers. Today’s average mortgage rate is 2.87% which can be considered very close to the historic low. After looking at the Freddie Mac primary mortgage market survey we can see the average rates by the decade. Historically, low mortgage rates are a great incentive to buy a home.
-1970s: 8.86%
-1980s: 12.7%
-1990s: 8.12%
-2000s:6.29%
-2010s:4.09%
Credentials: http://www.freddiemac.com/pmms/
#3. Home Appreciation
Since 1995, the average annual appreciation for residential real estate prices has been 4.14%. According to the National Association of Realtors, this year the home price appreciation will hit 14.1%.
Credentials: https://cdn.nar.realtor/sites/default/files/documents/forecast-q3-2021-us-economic-outlook-07-29-2021_1.pdf
#4. Buyer Behavior
The buyer behavior has become less risky because buyers are pulling out all the stops to outbid the competition. The number of offers per listing used to stand at 2.2 a few years ago. Today’s number has increased to 4.5 making it twice as many offers. This can also be related to the low supply of homes on the market as well.
Credentials: https://cdn.nar.realtor/sites/default/files/documents/2021-07-realtors-confidence-index-08-23-2021.pdf
#5. How Long It Takes to Sell a House
Because of the intense competition on these homes, the average days on market used to stand at 35 days before the pandemic. According to the National Association of Realtors, that number today is cut to half and is now 17 days.
Credentials: https://www.nar.realtor/research-and-statistics/research-reports/realtors-confidence-index
No one can ever predict exactly what is going to happen with the market but experts believe these five reasons are causing many of the concerns associated with the housing market.
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