Experts see even better days ahead as inventory returns in spring
For the second consecutive month, existing home sales rose, as January’s numbers were up 0.6% from December.
According to Lawrence Yun, chief economist for the National Association of Realtors, home sales continue to ascend in the first month of the year, as buyers quickly snatched up virtually every new listing coming in the market.
To him, sales easily could have been 20% higher if there had been more inventory and more choices.
Low inventory remains an enormous problem for the industry, especially with mortgage rates hanging below 3%. But experts agree better days are ahead, with more homeowners expected to move during the warmer months.
Yun also said the continued COVID-19 vaccine rollout and financial stimulus from President Joseph Biden’s American Rescue Plan will only aid in more home sales – which will in turn prop up the economy even more.
Younger-aged homebuyers are expected to continue to pack the market this year, especially with the possible passage of Biden’s $15,000 tax credit for first-time homebuyers.
First-time homebuyers were responsible for 33% of home sales in January, up from 31% in December 2020 and from 32% in January 2020.
In today’s housing market, there are clear financial benefits to owning a home: increasing equity, the chance to build your net worth, and appreciating home values, just to name a few. If you’re a renter, it’s never too early to think about how homeownership can propel you toward a stronger future. Here’s a dive into three often-overlooked financial benefits of homeownership and how preparing for them now can steer you in the direction of greater financial security and savings
1. You Won’t Always Have a Monthly Housing Payment
Personal finance advisor Dave Ramsey explains, “Every payment brings you closer to owning the house. When you pay your rent, that money is spent. Gone. Bye. Not returning. But when you pay your mortgage, you work toward full ownership.”
As a homeowner, you can eventually eliminate the monthly payment you make on your house. That’s a huge win and a big factor in how homeownership can drive stability and savings in your life. As soon as you buy a home, your monthly housing costs begin to work for you as forced savings in the form of equity. When you build equity and grow your net worth, you can continue to reinvest those savings into your future, maybe even by buying that next dream home. The possibilities are truly endless.
2. Homeownership Is a Tax Break
One thing people who have never owned a home don’t always think about are the tax advantages of homeownership. The same article states, “You have tax advantages. Many of the costs of owning a home—like property taxes—are tax deductible. And if you’re paying off a mortgage, you’ll get to count your mortgage interest as a deduction when you file your tax return.”
Whether you’re living in your first home or your fifth, it’s a huge financial advantage to have some tax relief tied to the interest you pay each year. It’s one thing you definitely don’t get when you’re renting. Be sure to work with a tax professional to get the best possible benefits on your annual return.
3. Monthly Housing Costs Are Predictable
A third benefit is the fact that monthly costs start to become more predictable with homeownership, something that doesn’t happen if you’re renting. Ramsey also notes, “Rent rates will go up. Even if you found a killer deal in a hot area, inflation, competition, and rising property values will cause your rent to go up year after year.”
With a mortgage, you can keep your monthly housing costs relatively steady and predictable. Your monthly costs are most likely based on a fixed-rate mortgage, which allows you to budget your finances over a longer period of time. Rental prices have been skyrocketing since 2012, and with today’s low mortgage rates, it’s a great time to get more for your money when purchasing a home. If you want to lock-in your monthly payment at a low rate and have a solid understanding of what you’re going to spend in your mortgage payment each month, buying a home may be your best bet.
Activity remained unseasonably high, though listing shortages threaten to take steam out of the housing market
The U.S. market continued an unseasonal rally in December, with pending sales hitting an all-time high for the month, according to an index released Friday.
Home buyers signed 21% more contracts in December than a year prior, as surging demand for homes kept dealmaking at unusually high levels given the time of year, according to the National Association of Realtors (NAR) Pending Home Sales Index.
Frenzied housing activity continued to show slight signs of deceleration, though it’s likely due to a severe lack of homes on the market, according to Lawrence Yun, chief economist at the NAR.
Signed contracts decreased by an ever-so-slight 0.3% in December compared to November, the fourth time in a row that dealmaking fell on a month-to-month basis. Pending sales peaked in August, though housing activity has remained at historically high levels since.
“Pending home sales contracts have dipped during recent months, but I would attribute that to having too few homes for sale,” Mr. Yun said in a news release on Friday. “There is a high demand for housing and a great number of would-be buyers, and therefore sales should rise with more new listings.”
Regionally, the South had the strongest December, with contracts up 27% over December 2019. The Northeast was next, with dealmaking up 22% year-over-year, followed by the West, up 19% annually, and the Midwest, up 14%, according to NAR’s figures.
On a local level, Portland, Oregon; Las Vegas; Denver; Los Angeles and Boston have recorded the most significant recovery in their markets since the lockdowns of last spring, according to a separate index from realtor.com.
Home prices in these and many other cities have soared as a result of competition over too few homes in the wake of the pandemic, which has spurred many to seek out new living arrangements while working and schooling from home. Inventory shortages could improve this spring, however, as sellers list their homes during the peak buying season, economists have speculated.
According to the National Association of Realtors® report last Friday, existing-home sales in 2020 surged to the highest level in 14 years, landing 22% higher than a year ago. Existing-home sales—completed transactions that include single-family homes, townhomes, condos, and co-ops—posted big gains year over year and rose by 0.7% in December 2020 compared to November 2020’s already unseasonably high rates.
NAR’s Chief Economist, Lawrence Yun, said “This momentum is likely to carry into the new year, with more buyers expected to enter the market. Although mortgage rates are projected to increase, they will continue to hover near record lows at around 3%. Moreover, expect economic conditions to improve with additional stimulus forthcoming and vaccine distribution already underway.”
Existing-home sales in December 2020 reached a seasonally adjusted annual rate of 6.76 million. Still, home buyers are finding a limited number of homes for sale. Inventory levels are at record lows. That has placed continued pressure on home prices, which continue to post double-digit yearly gains.
The median existing-home price for all housing types in December 2020 was $309,800, up nearly 13% compared to December 2019, NAR reports. Every major region of the U.S. saw home prices rise last month.
The housing market is now positioned for an even stronger year as it has incredibly recovered in 2020. Record-low mortgage interest rates are a driving factor in this continued momentum, with average rates hovering at historic all-time lows.
Based on the recent Realtors Confidence Index Survey from the National Association of Realtors (NAR), buyer demand across the country is incredibly strong. However, this is not the same case on the supply side. Seller traffic is simply not keeping up. Here’s a breakdown by state:
As the maps show, buyer traffic is high, but seller traffic is low. With so few homes for sale right now, record-low inventory is creating a mismatch between supply and demand.
NAR also just reported that the actual number of homes currently for sale stands at 1.28 million, down 22% from one year ago (1.64 million). Additionally, inventory is at an all-time low with 2.3 months supply available at the current sales pace. In a normal market, that number would be 6.0 months of inventory – significantly higher than it is today.
What does this mean for buyers and sellers?
Buyers need to remain patient in the search process. At the same time, they must be ready to act immediately once they find the right home since bidding wars are more common when so few houses are available for sale.
Sellers may not want to wait until spring to put their houses on the market, though. With such high buyer demand and such a low supply, now is the perfect time to sell a house on optimal terms.
The National Association of REALTORS® reported last Tuesday that existing-home sales in November climbed 25.8% compared to last year.
Existing-home sales include completed transactions on single-family homes, townhomes, condos, and co-ops, slightly decreased by 2.5% in November compared to October’s unseasonably high levels. The slight decrease last month ended a five-month streak of month-over-month gains. Still, all four major regions across the country posted significant year-over-year growth.
Buying frenzy continued to press on housing markets in November. NAR reported that home prices are rapidly climbing up due to the high demand, posting double-digit increases compared to a year ago.
NAR’s Chief Economist Lawrence Yun said that circumstances are far from being back to the pre-pandemic normal. However, the latest stimulus package and with the vaccine distribution underway, and a very strong demand for homeownership still prevalent, robust growth is forthcoming for 2021.
According to reports from Census Bureau, single-family housing starts continued their seven-month climb in November, coming in to the highest level since 2007. Housing starts increased by 1.2% in November compared to October and increased by 12.8% year over year to a seasonally adjusted annual pace of 1.58 million starts. Single-family housing starts rose 0.4% from October and 27.1% compared to last year.
The Mortgage Bankers Association’s associate vice president of economic and industry forecasting, Joel Kan said that the report is consistent with other housing data showing that the housing market has substantially rebounded from Q2 of 2020. The demand for larger homes has strengthened because of the pandemic that led to more construction, home sales, and mortgage applications. He added that the permits for new single-family construction also rose to 2007 highs, potentially an indication that we might see the increase in homebuilding continue into early 2021.
Single-family authorizations in November were at a rate of 1.14 million, up 1.3% from the revised October rate of 1.12 million. Actual single-family housing completions dipped again in November, down 0.6% from October’s rate of 879,000 to 874,000.
First American’s Deputy Chief Economist Odeta Kushi said that the rise in housing starts is a welcome sign of new single-family inventory to come and that 2021 may be the year of the homebuilder.
Zillow’s Economist Matthew Speakman said today’s numbers showcase the enduring strength of the housing and homebuilding markets and that builders are overcoming the constraints that have limited activity in the last few months.
The National Association of Home Builders and Wells Fargo Housing Market Index measuring builder confidence faltered a bit this month after three months of record highs, falling four points to 86. But it’s still the fourth month in survey history the score broke 80.
Bend, Oregon is the epitome of COVID-19 accelerated real estate sales. After only a few weeks’ pause in March from new restrictions, out of town buyers doubled down on Bend as the perfect escape from their respective cities. After evaluating the quality of life and relatively lower cost of living in Bend compared to our feeder markets like the Bay Area and Orange County/ LA, for example, Buyers have been even quicker to move here in the second half of 2020 than in past years. Why Bend? Buyers are choosing Bend over other markets for many reasons, including the year-round outdoor lifestyle (skiing, hiking, mountain biking, kayaking on the rivers & mountain lakes, golf, horseback riding & more), easy direct flights to West coast markets for ease of visiting clients and friends & family, luxury amenities with a laid back lifestyle, and an overall better quality of life. Bend is the perfect escape from restrictive or chaotic worlds.
COVID-19 set the precedent for working from home, so people started asking themselves, why not work from home in another city? It’s now common for lenders to ask for written proof from Buyer’s employers that the Buyers can indeed work from home in Bend. Contingent purchases are more commonplace as Buyers are willing to put their homes on the market the minute they write an offer on a home in Bend, but even more so cash offers are dominating our sales. Bend has recently been named by WalletHub as the second-fastest growing city in the nation, with COVID-19 clearly a contributing factor.
Examples showing the accelerated growth in Bend since COVID-19 based on sale prices and days on the market (DOM) abound. One of my listings in a desirable neighborhood sold for $905,000 in April, 2020 after 171 days on the market with 2 price reductions. A home on the same street with almost identical specs is currently pending in just 10 days. Listings at all price points have yielded multiple offers – as many as 22! – and are selling for up to $200,000 over asking price which is a new phenomenon in our market since COVID-19.
This graph depicts a sharp increase in median price in 2020 compared to past years during June through September across multiple years. From just the same period a year ago, we saw a 2% decrease in median price in 2019 compared to an 18% increase in 2020. We will continue to be in a strong Seller’s market until new inventory can catch up with demand, but since most people don’t want to leave Bend we’ll rely on new construction to fill the gap.
Home sales are skyrocketing during the pandemic, but the most dramatic increase is happening at the top of the market. Sales of homes costing $1 million or higher have doubled since last year.
Based on NAR reports, home sales in luxury vacation destinations have increased since July by 34% year over year in September.
With the pandemic causing work and school to be done at home, people who are financially secured are more compelled to look for a bigger or spacious home. This is cost-effective as mortgage rates are still at record lows.
Home prices are still rising as buyer demand remains high and inventories low. Based on NAR reports, sales for homes with prices ranging from $250,000 to $500,000 increased in September by 36%. The median home price last month reached a record high of $312,000, which is an increase of 14.8% from a year ago.