With the pandemic on the decline and home offices remaining steadfast, the demand for houses remains strong. Eagerness to find extra space or move out of expensive cities is causing market prices to increase like never before. If you are looking to buy a home, is 2021 the year to do it? We will discuss what is impacting the market right now so you can make the best decision.
Factors Impacting Housing Market
The first factor in the current housing market is the rising home prices. The National Association Of Realtors (NAR) releases statistics every month on the housing market. On June 22nd, they announced that May 2021 set a record for the median home price, which climbed to $350,300. That is an increase of 23.6% from May 2020. Every region in the nation marked a price increase for homes.
A second factor impacting the housing market is the lack of houses for sale. While home prices are rising, the NAR also noted that home sales decreased 0.9% from April, marking the fourth month in a row that sales diminished. Only the Midwest saw an increase in home sales, up 1.6% from March. According to Lawrence Yun, NAR's chief economist, the decrease in sales is overwhelmingly due to a lack of homes. The demand greatly outweighs the supply right now.
A third factor, which is a result of the previous two, is the incredible competition. First-time home buyers and low-income home buyers can't compete because other home buyers can outbid them. Anthony Lamacchia, owner, and broker of a Boston real-estate company reported that some buyers are putting a 50% down payment on $1 million homes. Other home buyers are offering tens of thousands of dollars over the asking amount, chipping in cryptocurrency to sweeten the deal, and even offering to buy the seller another house to win the bidding war. First-time buyers are not even able to compete against deals like that.
A fourth factor is the pandemic. In June 2020, housing sales jumped 21% from May, marking the largest month-to-month- increase in housing sales since 1968. Then, July jumped another 25% in sales. Many contributed this dramatic increase in housing sales to the pandemic. As lockdowns eased a little, people scrambled to purchase homes out of the cities and that provided extra space for their work-from-home office.
When Will Home Prices Decrease?
The short answer is, not in 2021. Realtor.com forecasts housing sales and prices to increase overall by year's end. The economy is recovering across the nation, businesses are hiring, and the unemployment rate remains right below 6%. Given the tremendous demand for housing, the improving economy, and the continued shortage, the housing market is likely to remain as it is throughout the end of the year, barring some unforeseen event.
According to the Home Buying Institute (HBI), home prices are expected to grow in 2022 as well. Freddie Mac and CoreLogic expect continued growth but at a slower pace of 4.4%. The housing market will enter into a cooling trend, but prices are not expected to drop. Zillow doesn't even predict a cooling trend, forecasting the housing price increase to remain as is in 2022.
HBI explains that two factors could reverse the trend. The first is an increase in home listings. With a shortage of homes and a huge demand across the nation, an increase in the number of home listings (by sellers not seeking to buy another home) will help balance the scale. The second factor is the affordability ceiling. As home prices continue to rise, it could get to a point where a majority of buyers are unwilling to bid at or over the asking price. Essentially, if demand decreases, it can help balance the scale.
Conclusion
The housing market is on fire right now for multiple reasons. Post pandemic eagerness to buy larger homes, a lack of supply, and an incredible demand have resulted in a booming housing market. It's great news for sellers, but it's challenging for low-income and first-time homebuyers who can't compete in bidding wars. The forecast, sunny with continued growth through 2022.
So should you buy a home in 2021? Well, that's for you to decide. Barring another unforeseen event, and 2020 showed us how fast they can happen, it appears the housing market we have is here to stay for a while. Prices are predicted to rise even into 2022, with a slight cooling trend. Of course, numerous factors contribute to the housing market, and prices may adjust if supply increases or demand decreases.
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Disclaimer: This article contains predictions by third parties that are not associated with Skip. Predicting the housing market is a guessing game and readers should be aware that these are predictions, not guarantees. Skip does not promote the validity of these guesses nor future housing trends. Prospective buyers should consult with a licensed Realtor.
