Housing Shortage is Nationwide News
Housing Shortage Is Nationwide News
No matter what source you choose, the shortage of residential real estate inventory is being discussed throughout national media. In the area covered by the Coastal Association of Realtors – Wicomico, Worcester, and Somerset Counties, Bright MLS reports a 64.7% decline in active listings this year vs. the same time last year, while home sales are up 44.5% and the median home price up 15%.
We are not the only area experiencing this phenomenon. Prospective buyers shopping today across the nation have 52% fewer homes to choose from than at this time last year, according to Realtor.com's Monthly Housing Trends Report. This supply crunch translates to a record median list price of $370,000 nationwide, 15.6% higher than a year ago, mirroring the trend we are seeing here on Delmarva. This information speaks to the highest demand for homes we have seen in a very long time. How could this have happened, many ask. The reasons are quite simple:
- There has been a vast reduction in new construction over the past decade: Up until very recently, our area (as well as many other areas across the nation) had been experiencing a slowdown in new construction. Between the shortage of labor in the field, difficulty getting local government approvals for projects, the high cost of materials and financing complications, construction has been on the decline since 2007.
- Millennials hitting the real estate market: The largest generation since the baby boomers have been gradually hitting home buying age in recent years. Now in their 30’s, married and starting families, that trend is peaking right now. This group that had been enthralled with city living and walkability are now anxious for more space and property due to the pandemic.
- Low interest rates: Historically low interest rates throughout the last few years have made housing opportunities more within reach of many renters who have had to contend with constantly rising rents and tight quarters.
- The COVID19 pandemic: The past year, when people have been confined to their homes 24/7 teaching their children and working remotely without the luxury of vacations and socializing, has forced us to look at how our current accommodations meet our needs. If the pandemic has done anything, it has changed the way Americans see their homes and how those quarters fit their lifestyle. At the same time, the older generation of baby boomers who might otherwise be considering sizing down at this time in their lives, are staying put. They are not anxious to handle the safety protocols required due to COVID19 when selling and have concerns about finding suitable new housing in this current shortage.
- Potential sellers are comfortable in their homes: Interest rates had been attractively low for several years leading up to the pandemic, and many homeowners took advantage and refinance their homes. Their monthly mortgage payments are lower than ever and they may not be motivated to go anywhere for some time. Many potential sellers also have concerns about where they will go next – with inventory so low in the purchase and rental market, their own options may be few and far between.
All this has led to an unprecedented market where our agents are working harder than ever helping buyers through endless bidding wars and guiding sellers through the issues of accepting offers that may not appraise out. At the same time, data from the National Association of Realtors (NAR) projects a total of nearly 6.5 million existing home sales in 2021; up significantly from just 5.64 sales in 2020 and 5.34 in 2019.
One might ask what will end this current market and when will it happen. The answer to what will end this situation is simply a change in supply and demand: either supply needs to go up to meet the current high demand or demand will wane. There are a few conditions that could help to ease the current furor:
- Increase home building to ease demand: We are already seeing throughout our area more new construction underway. However, a number of the issues mentioned above including a shortage of labor force and the high cost and availability of materials still remain.
- Convince more sellers to enter the market: Higher listing inventory will certainly ease the demand. There are many theories as to why this hasn’t happened yet: fears about the pandemic, fears about not finding a new place, wanting to capitalize on future price gains, and even simply contentedness among consumers with their current situation. Whatever the causes, though, the economists predict more sellers to list in the coming months thanks to the rollout of vaccines, as well as interest in taking advantage of continued rising prices.
- Rising interest rates: A slowdown in demand may depend most rapidly on increased rates. However, it would also become a critical factor in building loans. According to NAR’s projections, average 30-year fixed interest rates ultimately rise to 3.3 percent by the second quarter of 2022. These are still great rates, but they are higher than the average of 2.8 percent in the fourth quarter of 2020, and that will translate into higher monthly payments for consumers.
- Less concentration on housing: As the nation sees its way out of the pandemic due to the availability of vaccinations, people will be coming out of hibernation and again spending time outside their homes, planning vacations and spending again on leisure activities. This may ease some of the flocking to the real estate market as the only way to make living circumstances better.
In reality, the solution will most likely be some combination of an increase in supply and a reduction in demand, but unfortunately either way the current shortage isn’t likely to dissipate in the immediate future. All of which is to say the supply shortages currently plaguing the U.S. housing market probably won’t be resolved for years. To date, our market simply has not hit its affordability breaking point. People are still paying more and more for homes.
We know eventually that growth will have to level out but economic experts predict this leveling will most likely come more in the form of a slowdown in appreciation in 2022 or 2023. In the meantime, look for our current frenzy to continue for some time to come. ERA Martin Associates Realtors are becoming increasingly adept at navigating the current real estate market, from multiple-offer situations to appraisal issues to Covid-related concerns. Whether you are thinking about buying or selling in 2021, your ERA Realtor can help you with all of the options available to you and guide you in making the right decision for you and your family.