The past year has been a whirlwind for the real estate market. Home prices have sky-rocketed with values up 22.4% year-over-year. Suburban towns are seeing greater home sales and population growth as a result of the COVID-19 pandemic. Finding a new home with the living space, outdoor space and even room for a home office and gym has become what buyers are looking for, and they are willing to pay the increased prices to do so.
With lower interest rates, more buyers than ever are competing to win the home of their dreams or even settling for a fixer-upper. Real estate markets in many towns are seeing offers above asking price with little to no contingencies as well as multiple offers on each home. The housing market is still hot with no end in sight.
Current Real Estate Market Conditions
It's a seller's market. Sellers can basically name their price and terms — and get what they want. An influx of buyers is ready and willing to buy right now. The demand for real estate is high and supply is extremely low. Most housing markets across the country simply do not have enough inventory to meet homebuyer demand. The housing supply nationally is the lowest it has been in recent years with just a 1.1-month supply. Generally, inventory has been closer to a 3- to 4-month supply over the past 5 years. Now, with such a high demand for homes in addition to record-low interest rates, home prices are rising and market conditions are intensely competitive.
What Impacts the Housing Market?
Many factors directly impact the housing market. Previously, the time of year and location had the biggest effects. While these are still major factors, we are now in a whole different ball game.
- Low interest rates give buyers a higher spending budget. They can afford much more house and stretch their money further now with lower interest rates. Uncertainty about when rates will increase again is causing buyers to panic and buy now.
- Increased housing prices give people wanting to downsize an incentive to cash out on their current homes and buy something more modest. The same goes for people with a second home or vacation home. Now is the time for them to sell and make nice profits on their investments.
- Offers over asking price also have been bringing values up for nearby houses, which will appraise higher if comparable homes on the same street have recently sold for top dollar and over list price.
- Supply is a big factor in the housing market. With the housing supply so low, competition is fierce and causing home prices to rise. As many people try to relocate to the suburbs and out of bigger cities, markets that never had such demand are seeing homes fly off the market in a matter of days.
Housing Market Trends
The housing market right now is at a major high. The median home price of a single-family home has crept up to $371,000. That’s a $143,000 increase nationally since 2016. Home prices are continuing on an upward trend, having increased 22.4% in the last year. This impressive price growth has some investors and buyers worried about a housing price correction in the coming years.
Rental Market Trends
The rental market has also been on an upward trend, with lease rates increasing by 3% in the last year. Average rental prices have gone up by almost $300 per month in the last 5 years. As some buyers take a break from the competitive housing market while inventory is low, many are turning to rentals to wait out this extreme market. The national rental vacancy rate is low at just 6.8%. This is good news for investors looking to purchase rental properties because rental rates are still on the rise and vacancy is low. For renters though, affording the increased rental rates can be difficult. With a tight rental market, there is increased need for affordable housing and rental properties.
New Housing Construction Trends
As construction costs continue to rise, construction jobs are also on an upward trend. Builder sentiment is high because of the housing shortage. New residential construction has resulted in more housing and more investment opportunities. However, with construction costs at a record high and many materials depleted or backordered, construction is slower than anticipated. Items such as appliances, windows and doors are simply harder to find as production has been down, and demand has gone up. Buyers having trouble purchasing have decided to stay in their current homes and renovate while new home construction has been called for in many towns.
Foreclosure Trends
A plethora of home-renovation shows has inspired many people to fix and flip homes, which has, in turn, boosted foreclosure sales and caused the number of distressed properties on the market to hit an all-time low of just 0.3%.
Buyers and investors alike have taken their chances purchasing foreclosure properties to renovate or flip. This is great for nearby homes because there are fewer distressed and abandoned homes in the foreclosure process, which helps raise property values.
Economic Data
The COVID-19 pandemic in 2020 caused a major surge in unemployment rates. The average unemployment rate nationally rose to almost 15%, up from 3.5% before the pandemic. Now, the rate has dropped to 6.1% and is still on a downward trend. Job growth and employment rates are on the rise as businesses have begun to open to full capacity and the economy starts to climb back up. Statistics show that the country is still not where it needs to be as far as a successful comeback, but projections are optimistic that it will get there.
Mortgage Rates
While mortgage rates tend to fluctuate daily, they have stayed low (around 2.6% to 3%) for the last year. That’s why buyers are taking advantage of the current real estate market and borrowing more than they ever have because with lower mortgage rates their loan officers can lend them more money. Homebuyers can then buy more expensive houses, aiding in the increases in our current real estate market. As buyers shop around for the best rates, they learn that things like credit scores, the length of the loan, interest rate types and even down payments affect their interest rates and monthly payments. Higher credit scores, shorter loan repayments, a fixed-rate mortgage and a hefty downpayment can have you seeing a lower interest rate.
Current Real Estate Market Outlook
While it's difficult to successfully determine the real estate market outlook for 2022 just yet, many states across the country are still not even seeing a slowdown in home sales. The market was expected to get back to normal by now, but with much of the population growth moving to the suburbs and continuing low interest rates, there is no end in sight. Single-family home values are expected to even out a bit as the herd of buyers diminishes. Buyers, real estate investors and real estate agents will continue to keep an eye on mortgage rates to further determine the next year in real estate.