What is Happening with Housing Prices?

What is Happening with Housing Prices?

| May 17, 2021

Spring is here! Tax season has ended, the kids are getting out of school, and the time for travel and outdoors fun has begun. It is also the time that most people begin looking for, and selling, houses. If you have not looked at the prices of homes recently then you may be in for a little surprise. According to the National Association of Realtors, prices have increased 15% around the country in the last year alone. Houses are selling for well over asking price, too. A Berkley home famously sold for one million over asking in March of this year, nearly double the original price.

 

If you are anything like me, you are looking at your own home price and saying to yourself “this can’t be what my home is worth”, yet there are people paying exactly that and more on the market right now. The question is…why? Let’s take a look at some of the biggest reasons…

 

Home building is lagging. This is mainly due to the price of lumber. Lumber prices have gone up 280% since the beginning of the pandemic, and shortages are likely to continue. With the prices of lumber so volatile many contractors have stopped quoting prices in advance, and some have begun to question if there is enough lumber to build out existing contracts for the summer. As a result new builds are down, and this has pushed potential buyers to existing homes, but…

 

People are staying in their homes longer. Whether this is due to the pandemic or symptomatic of a changing trend is unknown. Whereas before people were selling once every 7 years, the number recently has been closer to every 10 years. Couple that with the fact that fewer people are willing to go through the selling process for their homes during the COVID age and you can certainly see the squeeze. According to the National Association of Realtors, the supply of homes for sale was down 26% in January 2021 compared for January 2020.  Typically, as the summer heats up we begin to see more people sell their homes, and that could spell an end for this boom, except that…

 

Demand is rising. As a generation of aging Americans are staying in their homes longer, a new generation of home buyers is emerging. This new generation is supercharged with low interest rates, meaning buyers can get qualified for higher price tags. Add into this the number of cash buyers leaving his price states and the resulting bidding wars, it is no wonder prices are rising so quickly.

 

What should you do? Nothing that you would not normally do, there is no reason for rising home prices to alter your financial plan. And for anyone out there worried that this is a bubble, you will be happy to know Morgan Stanley does not think so. According to a Yahoo! news article strategist Vishwanath Tirupattur says that the rise in conventional loans instead of adjustable loans puts 2021 on a different trajectory than 2006. In addition, Janet Yellen has discussed raising interest rates to keep a bubble from forming in the housing market.

 

As always it comes down to supply and demand, though the circumstances surrounding this particular boom are interesting to say the least. Analysts believe that we will not see an increased supply in lumber or houses anytime soon, but also that rising housing prices will taper off eventually. The bottom line is to focus on your plan, and as always if you have questions about this topic, we are always a phone call away.