The Housing Market is on Fire!

Andy Reynolds

Key Takeaways:

  • Housing inventory has declined by 52% from last year and is 15.6% more expensive.
  • Millennials are finally participating in home purchases in a more prevalent way.
  • Low inventory and increased construction costs have made home purchase decisions difficult for buyers.

To put it bluntly, the housing market is on fire!  Over the past several months, we have been working with several families who are looking to purchase new homes and have witnessed the exuberance across nearly all price points in the housing market.  What was a buyers-market only a handful of years ago, buyers are now struggling to find houses for sale, let alone houses that are actually being listed on the market.  We have received questions from both buyers and sellers about how to deal with the housing market and thought it would be beneficial to share some thoughts, as we see it.

Housing Supply Statistics (change past 12 months)

  • National inventory down 52%1
  • Newly listed home inventory down 20%1
  • Median national listing price up 15.6%1
  • Newly built single-family home prices up 6.7%2
  • Lumber prices up nearly 300%

Interest Rates

It is evident that the housing market is being pushed higher from a handful of tailwinds.  First, and most obvious, are interest rates.  While rates have ticked up slightly from their lowest levels back in January, mortgage rates are still near all-time lows.  Because most home purchasers focus most of their attention on their loan payment, low interest rates allow buyers to purchase a home for a relatively smaller monthly payment.  This smaller loan payment entices “renters” to purchase homes and current homeowners to purchase larger homes that may have previously been outside of their price range.

Demand from Millennials

Millennials have become a stronger force in the buying-side of the housing market.  This subset of Americans has been slow to participate in the housing market, primarily due to student loan payments and a desire for flexibility, travel, etc.  The largest cohort of millennials is now turning 30, an age at which student debt has been paid down and family formation has started to occur – a natural time to consider home ownership.  Additionally, the oldest cohort of millennials are increasingly participating in the “trade-up” market, as they are outgrowing their starter home purchases.

Lack of Inventory

Inventory remains limited due to several factors.  First, as interest rates have fallen, home purchasing has been accelerated to “take advantage of low rates”.  Over the past several years, many people have either purchased ahead of their typical timeframe or took a risk and purchased more of a house than they typically could have afforded.  Low rates have enabled people to purchase homes earlier than normal, which likely will have an impact on supply (people staying in their homes longer than normal).  New construction costs are not helping the inventory challenge either, due to higher material costs, longer delivery time for building materials, and labor shortages.  Likely another contributing factor, which cannot be measured, is the pandemic’s impact on people pressing the pause button.  As rates began to fall, a concern over supply was always discussed and anticipated; however, COVID throws a wrench in trying to fully understand the current supply/demand interactions.

What Should Buyers Do?

This is the most difficult question to answer, as nobody has a crystal ball for the housing market.  Several buyers have considered waiting for a year or two to see where housing prices are at that time.  Considering one’s home ownership timeframe is more important now than ever.  If you are moving to a new area, taking a risk on a job relocation, or do not anticipate living in a home for 3-5+ years, renting should be considered now more than ever.  Prudent decision making is imperative, even with the lure of ultra-low interest rates.  A home is likely a large component of one’s financial assets, purchasing a home with the endgame in mind is a prudent decision.  Paying a little extra for a 30-year dream home is far less concerning than paying extra for a home that will be back on the market in two years.

A Note to Sellers

Many have asked if they should sell their house during this craze.  If it makes sense for your financial plan, then yes, it is certainly worth considering.  However, what many people forget is that while you may be selling your house high, you still need somewhere to live.  Are you therefore buying high, as well?  Knowing your 5-10+ year goals for home ownership is very important in this decision making process.





Weekly Update