Housing Market Update: How to Handle a Hot Market
So far this summer the market has stayed hot, with inventory still low and prices still high compared to the previous year. Looking at media sources, headlines may still sound alarmist, but the best way to assuage any fear about these clickbait-style bylines is to know your numbers.
To help you create context for your sphere, read on for national housing research from the Keller Williams research team that informs on the current state of the market. When you’re finished, make sure to review your local MLS for the most accurate picture of the market, so you can help your clients navigate the present-day landscape with confidence.
Understand the Inventory
It’s important to remember that the problem with low inventory isn’t that there aren’t enough homes available – it’s that there’s a huge demand. “There is inventory, there are new listings,” says Jim Talbot, director of research at KWRI. “We couldn’t have a rate of 5.8 million in sales if there wasn’t inventory. The problem is the demand is so far outstripping inventory that they fly off the market.”
With demand so strong, finding homes fast becomes key. In May, homes stayed on the market for an average of 17 days. And, for homes ranging in price between $100,000 to $500,000, that average was only 6 days. Fast-moving inventory means you need to prepare clients for making decisions faster than they normally might.
New home inventory is also starting to make a comeback. While many new home builders went under during the Great Recession, that number has slowly increased over the past decade. “So, we’re still seeing really, really strong growth in new home sales, and we get to it in a little bit of construction, which we absolutely want to see,” says Talbot. “It’s really important to get new inventory out there and to get those absolutely crucial sectors of our industry up and firing in a way they really haven’t since before the Great Recession.”
Related reading: 5 Action Steps for Unlimited Listings With New Homes
However, just like the existing home market, the new home market is also fast-moving. In May, only 22% of new homes were sold before construction even started. That number has since jumped to 36%. In many areas, home buyers are willing to put money down before construction even starts.
U.S. Housing Market Update
Now, it’s time for the numbers. Here is everything you need to know about the U.S. market of the moment.
•Overall, there was 5.8 million in existing home sales in May. That’s down 0.9% over the previous month, but up 44.6% since last year.
•Home prices continue to trend upward, both for new and existing homes. The median existing home price in May was $350,300, which is up from last month by 2.8% and a 23.6% increase over last year. New homes averaged $374,400 in May, which is up 2.5% from last month and 18.1% since last year.
•The inventory on the market has still been tight, though we’re seeing slightly more across the board. Existing home inventory for May was at 2.5 months, which was up 4.2% from last month. However, it still was down 45.7% compared to last year. However, it’s important to remember that at this time last year, many people weren’t moving. The new home inventory followed similar trends, with 5.1 months’ worth on the market, up 10.9% from last month and down 3.8% compared to last year.
•New home construction trends look as though they’ll continue to increase. One of the best ways to make sure things like single-family housing starts will remain sustainable is to look at new permits. This May new permits were up 36% compared to that same month in 2019.
•Single-family housing starts stay strong, with 1,098,000 in May. That’s up 4.2% over last month and 49.8% over last year. Even when compared to 2019, home starts are up 30%.
•Mortgage rates are still low, with the average at 2.9% in May. That’s down 3.1% from last month, though still incredibly low, and down 3.2% from last year. Despite these small increases, most experts suspect there won’t be any serious rate increases until 2023.
•Affordability continues to trend down. April affordability rested at 155.8, a drop of 11.8% from the 170s of last month. This is also a 14.7% trend downward from last year.
What Buyers Should Keep in Mind
It’s important to remember that 2020 was a weird year for industries across the board. Comparing sales this year to sales last year isn’t always reliable, because many people were staying put during the early months of the pandemic. “In May of last year, we were still in the depths of the lockdown,” notes Talbot. “In many parts of the country, real estate had not yet been declared an essential business. Consumers weren’t quite sure whether we could keep them safe if they were going to go look at home or sell their own. And the numbers were down sharply. They came back obviously very strongly after that.”
With the market so hot, some people may be hesitant to buy. As Talbot puts it, “Let’s say a home buyer reads a headline that says sales are up 45% year over year, and inventory is down 46%. They might just be tempted to say there’s nothing out there, and they’re going to stay in their home. Why waste time driving around town when there’s no homes out there?” But, as we’ve noted, inventory is slowly increasing across the board, and there are plenty of homes out on the market. Buyers just need to be smart about finding the right home and making a smart offer.
For example, with the rising housing costs, some might even worry that they can’t find a home in their price range. That’s where things like house-hacking come into place. House-hacking is when someone purchases a piece of real estate – a single-family home or duplex – and leases out one of the bedrooms or units. This rental income can then be applied toward their mortgage. House-hacking may help clients afford a house that may otherwise be out of their price range or make a mortgage in general more affordable. Books like Gary Keller and Jay Papasan’s HOLD offer great insight into new ways clients can use rental properties to not only help handle a higher mortgage, but create an ongoing revenue stream.
Related reading: Two Important Conversations to Guide Your First-Time Homebuyers in Today’s Market
Watch the full housing market presentation by Jim Talbot, director of research at KWRI, which is available exclusively to KW agents.
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