By Jeremy DeLay, Tulsa Home + Design Realty (Opinion)
If you’ve read any of the articles on our site, you’ve seen mention multiple times of the crazy Real Estate market we’re experiencing in 2021. What started with a housing shortage before the start of the pandemic has combined with all-time-low interest rates and record-high demand, leading to an absolutely unprecedented environment. These factors, working in tandem, have created a housing boom that some have feared would become a bubble ready to burst. It’s really a fascinating time to be in Real Estate in the history of the world. I’m sure it seems ideal in some ways, with home prices soaring since the beginning of the pandemic, it’s every seller’s dream scenario. But that’s only part of the story. The other side of that coin is a dramatic shortage in inventory that’s pushing prices so high that homes are listing well above their actual value, sellers are only accepting cash offers in many cases, and often, there just aren’t enough new homes for everyone who wants to buy one. It’s really a mixed bag and, depending on what side you’re looking at it from, it may be great, terrible, or somewhere in between. In this article, we will look a little closer at some of the elements mentioned above and discuss what that may mean for you.
The first thing to discuss is the housing shortage. On a national level, the supply of homes for sale has been down over 50% year over year versus 2020 multiple months in 2021. At the end of May, it was down 43.1%, representing 415,000 fewer homes for sale than on a “typical” June day! With so many fewer homes available for sale, prices have shot up. According to fortune.com, “median home list prices are up a staggering 24% since the onset of the pandemic, climbing from $310,000 in February 2020 to $385,000 in June 2021.” So, what does this mean? This means we have been in one of the most massive “seller’s markets” of all time. While it’s great that, as a seller, you’re able to get so much value out of your house when you sell, it’s been incredibly and increasingly difficult for buyers to find affordable housing. It’s really thrown the market into some chaos from the standpoint of how offers are made, what is offered, and what offers are ultimately accepted. In a normal market, when someone makes an offer on a house, that offer and the financing behind it are subject to an appraisal. It’s important that the appraised value is equal to or less than the amount financed so that as a buyer you aren’t in a situation where you owe more on your new home than it’s actually worth. What we’ve seen in this market are buyers frequently offering thousands of dollars over the list price and appraised value, and in many cases even waiving the appraisal altogether. Additionally, when homes do hit the market, they are selling incredibly fast. This has led to sellers only accepting cash offers so that they don’t have to deal with any financing that could potentially fall through. As you can imagine, cash-only offers greatly limit the pool of people who are even in a position to make an offer. One group this has had a particular impact on is first-time home buyers.
In addition to the low supply of houses on the market, we’ve also seen all-time-low interest rates. But what does this mean practically? Your interest rate is basically the cost of borrowing money, so the lower it is the less you pay over time. That being said, when you’re talking about hundreds of thousands of dollars, a percent or two can make a big difference. For a real-world example, I just refinanced the loan on my house. Our interest rate was 4.5% on our original loan, but by refinancing in this current market, our new interest rate is 2.8%. In our specific situation, that’s a savings of $178 per month. A lower interest rate like this can also mean significant savings over the life of the loan. These historically low rates have been a big driver in the state of the current market as many people are trying to capitalize on the opportunity to own a home with an interest rate that may not be this low again in our lifetimes. This phenomenon has been part of what’s causing demand to sky-rocket beyond the actual supply of homes available.
So, what does this mean for the end of 2021 and looking into 2022? From what I can tell, the market should cool off some. There is still going to be a housing shortage that continues into 2022 and potentially beyond, but hopefully, it will not stay as pronounced as it has been throughout this past year. Additionally, I think that we can expect for interest rates to come up from their current lows. I think they will stay relatively low compared to historical norms, but will come back up some. I think we are also going to continue to see tremendous growth in new construction. According to the National Association of Home Builders Qtr1’21 report, 16 percent of American adults are planning on buying a home in the next 12 months. Of that group, 42% are looking to buy a newly built home. The pandemic has had a negative effect on new home construction in terms of supply shortages and timelines, but it looks like the demand is there and will continue to grow. If you’re thinking about buying or selling, these are just some of the factors to consider as you decide when to make a move.
*At Tulsa Home + Design, we work with clients at every step of their home-buying and owning journey to help them find and create spaces to live and grow. Call us today. www.tulsahomeanddesign.com