What goes up must come down. Or, must it?
As a disclaimer, my crystal ball is broken and my Magic 8 Ball only has two answers:
- “Ask Sarah” (my wife) or…
- “Ask Debbie” (my business partner)
I’ll avoid predictions and show you how to draw your own conclusions.
Buyers are asking you, “should I wait to buy?”
Sellers are asking you, “should I sell now?”
The short answer is… it depends.
Not surprisingly, the factors that drive real estate prices are simple factors of supply versus demand. While every market is different, here are some data to consider.
According to the National Association of REALTORS® 2021 Economic Outlook, the following increases are projected compared to 2020.
- Existing Home Sales (units) + 8.5%
- New Home Sales (units) + 18.8%
- Housing Starts (new homes beginning to be built) + 5.9%
- Median Existing Home Price + 4.1% to $296,500
- Median New Home Price + 3.0% to $338,100
Let’s get back to supply and demand.
Over-supply was one of the primary factors that led to the last great housing recession. Fueled by, among other things, speculation and questionable lending practices, the housing market saw a glut of inventory.
According to the Federal Reserve Bank of St. Louis,
- In January of 2009, there were 12 months of available housing inventory.
- In January of 2020, there were 5 months.
- In January of 2021, there were 4 months.
A quick word on months’ supply of inventory.
An example… as of January of this year, if buyers continued to buy at the rate they are buying and no new inventory came to the market, it would take only 4 months for there to be zero homes for sale in the United States. By comparison, in January of 2009, that would have taken an entire year.
According to NAR, 6 months of supply is often associated with moderate price appreciation with lower numbers of supply further driving up prices.
A final word on supply. Supply varies by area and price range. In our List to Last: Listing Skills Course we teach you how to evaluate your market to determine the direction prices are headed. Spoiler alert, one of the first indicators of the market cooling off is days-on-market for listings sold starts to lengthen.
The demand for housing is being driven, in large part, by three main factors:
- Affordability (via low-interest rates)
- Demographic Waves
What impact do low-interest rates have on homebuyers?
Simply, buyers can afford more home for their money.
According to NAR’s Quarterly Housing Affordability Index…
- In 2018, the median home sale price for a single-family home was $261,600. At an interest rate of 4.72%, the monthly principal & interest (P & I) payment of the buyer was $1,088 per month, representing 17.1% of the monthly median family income.
- In 2019, the median home sale price for a single-family home was $274,600. At an interest rate of 4.04%, the monthly principal & interest payment of the buyer was $1,054 per month, representing 15.7% of the monthly median family income.
- In Q4 of 2020, the median home sale price for a single-family home was $315,900. At an interest rate of 2.81%, the monthly principal & interest payment of the buyer was $1,040 per month, representing 14.8% of the monthly median family income.
Based on the above data, the median home sale price has increased by $54,300. Yet, the monthly payment (P & I) has decreased by $40. That’s the underpinning of why buyers are willing to pay a higher purchase price for their home – they are financially able to afford it.
The home-buying trends of the Millennial Generation are driving a lot of buyer demand. According to the Pew Research Center, Millennials recently overtook Baby Boomers as the largest generation in America.
Millennials, by definition, were born between 1981 – 1995, making them 26 – 40 years old as of this writing. (as a footnote, this is the definition given by the U.S. Census Bureau).
Intuitively, we know that life events are often what triggers real estate purchases – relationships, kids, job changes – and the largest generation is now smack dab in the middle of those life events.
They’re entering their peak spending years on housing (and housing accessories). Add the impact of parenthood and COVID-19 causing people to look for more spacious homes… the “move-up buyer” trend is likely being accelerated.
They move for jobs, family retirement. We know this.
What impact does that have on real estate? It depends on where you are.
According to the 2020 U-Haul Migration Trends Study, here are the Top 10 States that people are moving to:
- North Carolina
According to the 2020 United Van Lines Migration Study, Idaho was #1 for inbound migration and New Jersey was #1 for outbound migration. The United study further allows you to break out state-by-state, age range (see demographics above), the reason for moving, and income status. If you like stats, you’ll like this study.
Worth noting, the data from the two studies vary somewhat – presumably because U-Haul movers are “do it yourself-ers” while United movers are paying professional movers.
If you’re looking for a micro approach to migration, check out the U.S. Census Migration Map where you can sort for inbound/outbound migration at the county level. Bonus tip, you can also use these data for insight on geographically targeting your listing marketing for out-of-area buyers. To learn more tips and tactics for increasing your Digital Marketing Skills, check out our Digital Marketing Course.
This is not 2008. The dynamics of the market are totally different.
The current trend of increasing prices, decreasing inventory, and excess demand appears it will continue through 2021, and beyond.
This brings us back to our questions:
– Should the buyer buy now, or wait? Show them this info and let them decide.
– Should the seller sell now, or wait? Show them this info and let them decide.
A mentor of mine once said:
Tell them and they will ignore it.
Show them and they will understand it.
Let them tell themselves and they will believe it.
P.S. – Watch a short video related to this topic here
National Association of REALTORS® 2021 Economic Outlook
Copyright ©2020 “U.S. Economic Outlook: September 2020 .” National Association of REALTORS®. All rights reserved. Reprinted with permission. 8-27-2020, https://www.nar.realtor/sites/default/files/documents/forecast-Q2-2020-us-economic-outlook-08-27-2020.pdf.
Copyright ©2021 “Quarterly Housing Affordability Index” National Association of REALTORS®. All rights reserved. Reprinted with permission. 2-11-2021, https://cdn.nar.realtor/sites/default/files/documents/hai-q4-2020-quarterly-housing-affordability-2021-02-11.pdf