Article Originally Published on Inman.com, written by Jim Dalrymple II

There’s something really strange happening right now: There are seemingly no homes for sale, and yet the number of actual sales this year is probably going to be up compared to 2020.

How could that be? If there’s a housing shortage, shouldn’t that mean fewer homes will sell?

These questions get at the heart of the current inventory shortage. And more importantly, they hint at how it might, eventually, resolve.

As Inman has reported this week, agents are exhausted, consumers are literally crying after losing bidding wars, and economists are calling the situation unprecedented. On the other hand, data that the National Association of Realtors provided to Inman projects a total of nearly 6.5 million existing home sales in 2021. That’s up significantly from just 5.64 sales in 2020 and 5.34 in 2019.

There’d be an inventory shortage. And that’s basically what’s going on right now: Demand is outpacing supply.

Why does this matter?

Put simply, it’s because it shows that there are two ways out of this mess: Either supply has to go up to meet high demand, or that demand has to go down. In reality, the solution will probably be some combination of the two, but unfortunately either way the current shortage isn’t likely to dissipate in the immediate future.

Increasing supply

Building more houses

The most obvious way to address an inventory shortage is to simply increase supply. This is the solution that would probably make everyone — agents, consumers, lenders, etc. — most happy because it would mean everyone gets the house they need.

But there are real obstacles to making that happen.

Gardner explained that in some places, such as California or his own home base in the Pacific Northwest, land near job centers is increasingly scarce. That makes development more expensive, and in turn translates to high home prices for consumers — hardly the solution to an affordability crisis.

On top of that, labor costs have skyrocketed. This is partly because, as Inman previously reported, the construction labor pool never fully recovered after the Great Recession. But Gardner also pointed to a deeper issue that could pose challenges: “Labor costs are massive because no one is going to vocational school to become a carpenter or an electrician or a plumber.”

Danielle Hale, chief economist for realtor.com, made a similar point when talking to Inman about the challenges of increasing the supply of new homes. And the challenges in the building sector means new construction tends to focus on a narrow slice of the market.

“Trade workers were increasingly hard to come by at the cost builders were willing to pay,” she explained. “So, builders did an okay job of building at the higher price point. But we weren’t seeing the same thing at other price points.”

Hale further noted that many local governments lately have been “kind of making it difficult to get permitting through” for condos, meaning urban infill is also more difficult to do right now.

And of course the cost of construction materials is way up. This is in part because of pandemic-induced reductions in what manufacturers can make, but there are other factors at play as well. For example, Gardner said the Trump-era tariffs on Canadian lumber are still in place.

But everyone who spoke with Inman for this series said the U.S. has been building too little housing for so long that new construction alone isn’t going to fix the current problem in a reasonable timeframe.

“They’re building very fast,” Tucker said. “But I think it will take several years to meet this excess demand.”

Enticing more sellers to enter the market

The other way to increase supply is to convince more sellers to list their homes. 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 who spoke with Inman said they do expect more sellers to list in the coming months. Tucker pointed to the rollout of vaccines, as well as continued rising prices, and said both things could “bring some sellers off the sidelines.”

He also pointed to what he described as a “silver tsunami” as aging baby boomers leave homeownership.

“That will clearly start to shift the inventory dynamics,” he said.

Still, aside from changes associated with the end of the pandemic, many of these shifts are very long term, and they’ll be happening against a backdrop of more and more millennials hitting homebuyer age.

All of which is to say the supply shortages currently plaguing the U.S. housing market probably won’t be “solved” literally for years.

“I would say, if you’re looking around for a cohort that won’t have quite the same amount of growing pains,” Tucker concluded, “You could look at Gen Z. We could expect them to have a little less fierce competition.”

Reducing Demand

Declining interest from pandemic buyers

As has been widely covered, the coronavirus pandemic drove interest from buyers who wanted more space and who wanted to move from pricey places to cheaper ones. For higher income workers, it also in some cases resulted in more time and more money to spend on housing.

But that may be changing.

Dan Smith, a principal at Anvil Real Estate in Orange County, California, told Inman that as the pandemic has improved, would-be real estate consumers in his area have begun to spend less time on home searches.

“We’re already noticing our market here in Orange County beginning to slow slightly,” Smith explained. “We’re noticing more people going on vacation, and they don’t have time to look at houses.”

In other cases, Smith continued, buyers are simply getting a breather from the craziness of the pandemic, and have realized they may not need a new house, or at least may not need it quite as urgently. These changes are slight — multiple offers and bidding wars are still common in Smith’s area — but they do seem to hint at a shift on the horizon.

“Maybe not with prices yet,” Smith said, “but we’ve noticed it impact the market slightly.”

Mortgage rates

Rising mortgage rates may also prove to be a critical factor in reducing demand. And they may have a much more rapid impact than things like building more houses.

According to NAR’s projections, average 30-year fixed interest rates should hit 3 percent in the second quarter of 2021, and then 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.

Tucker doesn’t think rates alone will be enough to fundamentally change conditions, but they do seem to be having at least some impact already.

“It’s starting to cool off buyer interest,” he said.

Hale made a similar argument, saying that the soaring prices of the past year can’t last forever.

“Mortgage rates have enabled prices to rise so much without hitting consumers in the pocketbook,” she explained. “But now we’re starting to see mortgage rates turn around and consumers just won’t be able to have the same spending power that they had before.”

Affordability

Whatever happens with interest rates, though, prices can’t rise forever.

“Ultimately there must always be a relationship between incomes and home prices,” Gardner said, adding that affordability has become a serious challenge in the housing market already. “It’s what keeps me up at night.”

So far, apparently, the market hasn’t hit its affordability breaking point. People are still paying more and more for homes. But eventually that growth will have to level out.

“At a certain point you will see affordability become a bigger factor,” Hale said.

The timeline for improvement

All of this is to say that there’s good news and less-than-good news. The good news is that smaller shifts on all of these fronts — construction, new listings, rates, etc. — should mean that the current extremes won’t last forever.

“I don’t think we’ll see a decade of quickly escalating home prices,” Hale said.

Gardner expects prices to continue rising for some time, but thinks appreciation may slow in 2022 or 2023— a timeline that many agents also mentioned when speaking with Inman for this series.

But the less-than-good news is that there’s no silver bullet and inventory shortages are likely to stick around in some form or another for the foreseeable future.

“We haven’t seen the peak,” Gardner concluded. “This year is going to be a very frustrating year for homebuyers.”

Read Marion MacPherson’s full article here: https://www.inman.com/2021/02/19/annual-home-price-growth-reaches-highest-level-since-2006/

Increased buyer demand spurred by historically low-interest rates has pushed annual home value growth to the highest level since 2006, according to Zillow’s latest market report released on Friday.

Zillow Home Value Index increased to $269,039 in December, representing the highest level of annual growth (9.1 percent) seen since 2006. The ZHVI also broke records for month-over-month growth, with it matching the previous December all-time high in 1996 (1.1 percent). Despite the boom in home prices, the January time-on-market decreased to 18 days — beating the 2019 and 2020 average of 46 days.

“Homebuying demand has pushed the pedal to the metal for price appreciation this winter,” Zillow Senior Economist Jeff Tucker said in the report. “Normally we’d be talking about the spring selling season ramping up, but it looks more like last summer’s selling season simply never ended.”

Home values increased in all of the 50 largest metros, with Phoenix (17.1 percent), San Jose (14.2 percent) and Austin (13.7 percent) leading the pack. Meanwhile, San Francisco (5.3 percent), Chicago (6.7 percent), and San Antonio (6.7 percent) reported the slowest home value appreciation.

Tucker said the increase in home values is due to “buyers eager to secure more space and lock in today’s rock-bottom interest rates,” which averaged 2.68 percent in December and 2.74 percent in January.

“[They] are having to move quickly and aggressively to win out in this competitive market,” he explained.

Zillow economists expect home values to keep climbing, with home values growing 10.1 percent by December 2021. Zillow also revised its 2021 existing home sales growth forecast to 24.8 percent, which represents an increase to 7 million sales. Tucker said the increase is “driven by improved pending sales volumes and home purchase applications.”

A special report from the Wells Fargo Economics Group answered the top questions for the housing market in 2021. Below are the highlights, the entire article can be found here. Special thanks to Mike Ahr, Private Mortgage Banker from Wells Fargo for providing the info.

1. What is the risk that the red-hot housing market will turn into a bubble?

Most of the housing bubble worries stem from the resurgence in home prices. The median price of an existing single-family home has surged 15.1% over the past year. The price spike, however, is the result of the sudden increased demand for housing rather than increased speculation. More apartment renters are looking to buy and more homeowners are looking to enhance their current homes or buy larger homes. This change in preferences results in an outward shift in housing demand that by itself drives home prices higher.

2. Another repeated concern is what happens when forbearance ends? Will there be a surge in foreclosures? And if so, how will that impact the broader housing market?

Foreclosures will increase once moratoriums end, but we doubt that we will see a surge in foreclosures once forbearance programs end. Forbearance has proven remarkably successful. The share of mortgages in forbearance, tracked by the Mortgage Bankers Association, surged in April and May but has been generally edging lower since June, with many of the borrowers exiting forbearance either making their mortgage payments or modifying their mortgages.

3. The pandemic also upended the resurgence in many urban areas and some of the larger and most dense areas have seen significant population outflows. The shift has raised questions on whether the urban renaissance is over and what that would mean for the apartment market?

We expect the move to lower-price markets to persist into the early years of the economic recovery. The majority of office work, however, will continue to be done in office buildings, particularly in creative industries where collaboration plays a critical role in driving innovation. San Francisco, Silicon Valley, Los Angeles, and Manhattan no longer have a lock on the creative industries long centered in their areas, however. Several metro areas, most notably Austin, Dallas, Denver, Atlanta, Nashville, Raleigh, Charlotte, and Miami, have developed substantial ecosystems and attained the critical mass of young talent needed to compete with these established globally-connected hubs for corporate headquarters, research facilities, movie, music, and digital entertainment studios and other facilities. Several of these markets have also developed sizable startup communities. These factors, along with the increased ability to work remotely, suggest the shift away from high-cost gateway cites appears set to persist through the early years of the coming decade.

4. Will the surge in delinquent rents weigh on the economic recovery?

Following the unprecedented spike in initial unemployment claims at the start of the pandemic, there was a great deal of speculation about how many people would have trouble making timely rent payments. Many state and local governments quickly enacted eviction moratoriums, which alleviated some immediate fears about public welfare but amplified fears about landlords’ capability to make their own financial commitments following a surge in missed rent payments. Forecasts of the potential shortfall in rent collections mounted much more quickly than actual data on rent collections. In short, a larger proportion of apartment renters have been able to make timely rental payments. This is not to say that there are no problems. A large percentage of renter households, particularly lower-income households, report that they are behind in their rent.

5. After ramping up over the summer, home sales lost a little momentum toward the end of 2020. Where do you see the housing market in 2021 and what are some possible wildcards?

• Home sales and new home construction should strengthen further in 2021
• Single-family construction should build on this past year’s strong momentum
• Affordability remains the biggest challenge for the housing market
• The pandemic and rollout of vaccines remain the biggest wild cards for the housing and overall economic outlook

Read the full article here: https://rismedia.com/2020/12/12/buffini-bold-predictions-real-estate-market/

In summary, industry expert, Brian Buffini, founder, and chairman of Buffini & Company made these three bold predictions:

1. Decentralization

“People are moving into the suburbs and beyond. One of the greatest indicators is what renters are doing.”

2. The Changing Face of Relocation

“Remote workers are on the move. Between 14 and 23 million plan to relocate due to working remote.”

3. Upsizing

“People want high-speed internet, kids’ classrooms, more rooms, etc. We’re going to have even more competition in the move-up market.”

Buffini said that for next three years, as interest rates stay low per the Federal Reserve’s guidance, real estate professionals should put in extra efforts and make sales, even buying the very assets they sell.

“Eventually, we are going to have some sort of inflation. And what’s the greatest hedge against inflation? An asset—real estate is the greatest one,” said Buffini.

After two previous months of declines, pending home sales are showing a market rebound, with every major region recording a month-over-month increase.

This has been a spectacular recovery for contract signings and goes to show the resiliency of American consumers and their evergreen desire for homeownership,” said Lawrence Yun, NAR’s chief economist. “This bounce back also speaks to how the housing sector could lead the way for a broader economic recovery.”

“More listings are continuously appearing as the economy reopens, helping with inventory choices,” Yun said.

“New home sales took a similar upward turn last week, but today’s pending data is a more important indicator of market activity since it covers existing homes, which made up roughly 80 to 90 percent of sales in recent years. This move confirms that May closings could represent a low-point for home sales, with June and July numbers looking much better,” Danielle Hale, chief economist at realtor.com®, said in a statement.

Trending on RIS Media 7.3.2020

Until recently, the prognosis for the housing market was not great. With the economy in a free fall, home sellers swiftly took down their “For Sale” signs and many buyers chose to wait out the coronavirus pandemic. It was like the pause button was pushed on the normally bustling spring home-buying season.

But as states reopen their economies, the summer real estate market just might turn out to be hotter than anyone was anticipating. For the first time in more than two months, mortgage applications for home purchases were up year over year, rising an impressive 8.7% as buyers raced to lock in record-low mortgage rates in the week ending May 22.

This is according to a weekly survey from the Mortgage Bankers Association that spans more than 75% of U.S. residential mortgage applications. The purchase loans did not include mortgage refinances for those who already own homes.

“This is a bit of a bigger rebound than I expected,” says realtor.com® Chief Economist Danielle Hale. “It’s a sign that we are going to see a delayed seasonal bump in home sales. There’s pent-up demand from people who were not able to get out in the early part of the spring, and we’re seeing that now.

“Normally we see sales really ramp up in March and April,” she continues. But amid the pandemic and widespread job losses, many Americans wanted to wait not only until they felt more secure in their jobs but also until they could physically step into the homes they were considering. “We’re going to see that ramp up in June and July,” says Hale.

The recovery may be thanks to folks becoming more comfortable with the idea of embarking on the home-buying process as they have gotten used to taking precautions such as wearing masks and keeping social distance. Plus, more sellers are listing their homes now that cities and states are loosening restrictions. And then there are those ultralow mortgage rates, hitting 3.08% on Wednesday for a 30-year fixed-rate loan, according to Mortgage News Daily.

“The low mortgage rates, without a doubt, is helping to entice buyers back into the market,” says Lawrence Yun, chief economist of the National Association of Realtors®. Folks may also look at it as a less volatile investment. “Real estate may be viewed as a safe asset in the upcoming years.” Realtor.com May 2020

Melanie Snow

Companies across the country are re-evaluating the need for a traditional office environment and an increase in remote working opportunities could lead to a boom in buyers flocking to the suburbs. “Moving away from the central core has traditionally offered affordability at the cost of your time and gas money,” The Zillow survey found that approximately 75% of Americans working from home due to COVID-19 say they want to continue to work from home. 2/3 of the survey’s respondents said they would consider moving if given that flexibility. The need or desire for more space, dedicated office space, and to live in a larger home with more rooms has greatly increased. According to the May 13th 2020 survey, 50% of the respondents say they would be open to 45 minute or longer commutes.