But as we move to the second half of the year, the real estate market is pushing ahead full-throttle, or at least it would be if there were enough homes to buy.
There aren’t. We recently wrote about the latest report by the National Association of Realtors, “Housing is critical infrastructure: Social and economic benefits of building more housing,” which suggested that a once-in-a-generation solution is required to help reduce the acute shortage of homes, now estimated to be anywhere from 5.5 million to 6.8 million.
As Lawrence Yun, National Association of Realtors chief economist, noted, “America is on track for only 1.6 million and 1.7 million new housing units this year and next, respectively. That would represent the best two-year performance in 15 years, yet it would still be inadequate.”
His analysis of housing costs is that short supply means home prices and rents will continue to rise.
Recent numbers from Redfin seem to bear that out.
Redfin reported that more than 4,500 Seattle-area homes have sold for at least $100,000 above list price in 2021. Last year, just 400 homes sold at least $100,000 above list price during the same period. Powered by technology workers, whose stock holdings probably soared with the stock market, 580 homes sold for more than $300,000 above list price.
In a Redfin news release announcing the numbers, Seattle-area Redfin agent Scott Petrich said he has never seen anything like the current local housing market.
“It’s fueled by employees of local tech companies like Amazon and Microsoft and companies with big offices in the area like Google and Facebook,” he said. “A lot of them didn’t want to work remotely during the pandemic in small apartments, and that pushed them to seek out large homes with office spaces. Most of those people have the money to compete with other buyers and drive up prices.”
While it sounds extreme, what’s going on in Seattle is happening in most major metropolitan markets. Median home prices jumped 22 percent from a year ago, according to Attom Data Solutions, and home-price appreciation was greater than annualized wage growth in the second quarter of 2021 in 72 percent of the counties analyzed, most notably in Southern California’s Los Angeles, Orange and San Diego counties; Harris County (Houston), Tex.; and Maricopa County (Phoenix), Ariz.
Even with interest rates near all-time lows, first-time buyers are being shut out of home-buying opportunities. Attom Data reported that historic affordability dropped in two-thirds of the housing markets. Cash or like-cash offers (those without a financing contingency) are being accepted over offers that require mortgage approval. Given that first-time buyers typically have little cash for a down payment, competing with a cash offer is tough.
Those concerned about a housing bubble should pay heed to Yun’s belief that it will take years for the housing market’s supply to catch up with demand. Unless interest rates rise dramatically, dampening demand, which would shut down — or perhaps reverse — price appreciation, expect to see home prices continue to rise and first-time homebuyers increasingly locked out of homeownership opportunities.
Ilyce Glink is the author of “100 Questions Every First-Time Home Buyer Should Ask” (Fourth Edition). She is also the chief executive of Best Money Moves, an app that employers provide to employees to measure and dial down financial stress. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact them through her website, ThinkGlink.com.
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