Real estate pundits predicted a sharp decline in the housing market during the pandemic. In reality, it has been just the opposite. According to Lance Lambert of Forbes, in the 12 months between August 2020 and August 2021, home prices increased a whopping 19.9%. Previously, the biggest 12-month jump was 14.1% just prior to 2008.
According to CoreLogic, during the summer 50% of the homes sold were above asking price! “We’ve been tracking housing prices for over 20 years, and we’ve never seen anything like this,” said Frank Nothaft, chief economist at CoreLogic.
Even before the pandemic, there was a housing shortage; low inventory of homes for sale and a shortage of new housing starts. According to Stephen Kim, a housing analyst for Evercore ISI, “The supply shortage built up over 10 years and it won’t go away quickly.” He further states new housing would need to exceed two million per year “to bring the industry out of its current underbuilt situation.”
The average number of new homes built over the last 10-years was 750,000. In 2021, it is anticipated to exceed 1 million.
Several reasons highlight why the demand for home purchases increased during the pandemic.
- The Fed kept interest rates low which correspondingly created low-interest mortgages
- With the ability to work remotely, many decided to move out of the city
- Some wanted a larger home to include a home office
- Some wanted a second home since they could work remotely
The housing market is beginning to slow, though anticipated to remain robust. The trend during the pandemic is unsustainable. Some of the reasons are:
- Demand of existing homes still exceed supply
- Anticipated rise of interest rates that will increase mortgage rates
- Lumber prices are still high, though the rate of increase is easing
- There is a shortage of construction workers
If you are thinking of buying a home, we don’t suggest trying to time the market. Identify what you are looking for, get your finances lined up, and buy when you find your dream home!