The last twelve months have seen sentiment in residential housing markets change dramatically. The result is one of the most dynamic and challenging housing markets in memory. Following is a brief overview of market conditions over the past twelve months and a look at what to expect in the second half of 2021. Summer 2020 The summer of 2020 ended the first wave of COVID-19 cases and with it came a sense that the pandemic might be easing. As individuals and families considered their housing circumstances, their employment, their school opportunities and their personal constraints, they looked to move. Early in the summer, supply was plentiful and buyer demand—although increasing—was not driving multiple offer scenarios. Rental eviction moratoriums were being enforced and mortgage forbearance was widely available. With interest rates at record lows, moving to a home that provided safety from the virus and accommodated work and school circumstances started the wave of home buying. Fall 2020 An accelerating wave of COVID-19 cases in the fall increased buyer activity as people sought refuge from the pandemic and policies that restricted movement. With relocations increasing, existing housing inventory began to fall. Buyers entered the market faster than sellers offered homes for sale setting up multiple offer. Builders, who just a few months ago were concerned about oversupply, found they had no inventory to sell. Many builders had released commitments in the spring and were now looking for lots, land, labor, and materials to ramp up their homebuilding operations. Interest rates remained near record lows and rents began to rise. Spring 2021 As COVID-19 cases fell from winter peaks and vaccinations rates rose, we experienced one of the most challenging markets for buyers ever recorded. What began as multiple offers turned into dozens of offers in many cases. The supply of available homes was measured in days, not months, and many builders moved to sell finished units only. Supply chain challenges and labor shortages became acute and seemingly everyone was following record high lumber prices. Builders renegotiated contracts and missed delivery deadlines. Sellers asked for tens and hundreds of thousands of dollars over ask and required buyers to waive due diligence and financing contingencies. Prospective sellers were unable to move because they couldn’t find a new home to move into, deepening the shortage and accelerating the price appreciation. Summer 2021 Moving into the summer, lumber prices began to stabilize and then fall. Existing home inventories increased, although inventories remain lower than during the summer of 2020. Price levels are much higher, although price increases seem to be stabilizing. Some sellers are asking too much for their homes, taking themselves out of the market. Appropriately priced homes are still seeing multiple offers, although far from the frenzy of the spring. The COVID-19 Delta variant began a third wave of rising case numbers since the pandemic began. Second Half 2021 Looking ahead to the fall and winter, we believe the same drivers are moving the market that we identified at the beginning of 2021. Home as a safe place is the number one priority for most home owners and renters. Individuals and families are still looking for a place to educate their children, work, and play while remaining safe from COVID-19. The increased flexibility of work arrangements are accelerating relocations. The recent increase in cases has some employers extending their work-from-home accommodations, which in turn has employees moving to the place where they want to live while keeping their job. Low interest rates are softening the impact of higher prices as monthly payments remain manageable for many individuals and families. While inventories are higher than the past spring, overall inventory remains far below historical levels and far from oversupply. What’s Ahead Inventory levels should increase, bringing them closer in line to historical levels. Supply constraints will continue to disrupt builders, but not at the same level as the past spring. Rental demand will remain high and rental units will remain under supplied, causing rents to continue to rise in most markets. Price levels are at risk if interest rates rise, remote employees are called back to the office, or builders get ahead of market demand. Given the current conditions, we expect prices to rise in the second half of 2021, although more slowly than in the first half of the year. For more information visit https://erabrokers.com/research/ Comments are closed.
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