Think things are bad thanks to COVID? Well, think again -- as the housing market is "hot," and refuses to cool off.
According to ShowingTime, a residential real estate "showing management and market stats technology provider" (which sports over 1.5 million listings across the U.S.), showings and home tours were up 55.1%, nationwide, compared to around the same time last year.
Over the last several months, significant upward trends were noted in certain western markets, cities such as Austin, TX; Denver, CO; and Seattle WA. As of January, Seattle recorded an average of 26 showings per listing, while Denver clocked in at 23, and Austin at 18. (To put that in perspective, the national average is around 8 showings per listing, and January is usually considered the “off-season.”)
"As anticipated, demand for real estate remains elevated and continues to be affected by low levels of inventory," Daniil Cherkasskiy of ShowingTime noted. "On average, each home is getting 50 percent or more requests this year compared to January of last year. As we head into the busy season, it’s likely we’ll push into even more extreme territory until the supply starts catching up with demand," he added.
Indeed, due largely to the pandemic, moving trends have seen prospective purchasers flee large urban areas to escape to greener pastures (literally); with marked increases in such places as in Idaho (which leads the pack with an overall median home price increase of 14.5% compared to last year); Arizona (at 13.7%); Maine (10.5%) and Florida (7.1%).
The surge in home prices is not keeping pace with median income levels or rental prices, however, which suggests the trend won’t last forever – as this disparity was also present in the years leading up to the 2008 housing market crisis. Unlike 08’ though, this uptick is not being fueled by sub-prime loans or shady appraisal practices, but rather by a large demand and an increasingly waning supply.
Marco Santarelli, CEO of Norada Real Estate Investments in California, explains the yearly shortfall: "For over a decade, we've had a chronic lack of supply of housing …. We need 1.62 million units a year to keep pace with organic demand, but we produce significantly less. We're about 370,000 units short each year."
Compounding things a bit, is the fact that an unprecedented number of potential homebuyers are set to enter the market, with approximately 140 million millennials and “Gen Zs” coming of age and getting ready to purchase their first starter home. According to Santarelli, 52% of young adults ages 18-29 still live at home with their parents, representing the highest rate in 110 years. These loafers will eventually need a place to call their own.
But what happens when prices get too high? Well, once a large number of buyers are “priced out,” homeowners will have a harder time selling and refinancing. This could lead to a rise in foreclosures, which would then increase supply.
While the housing market is certainly cyclical, and historically experiences a correction every 10-15 years, it is still unclear when this realignment will occur, as this strong sellers’ market looks like it is going to continue unabated for a while.