Right now, if you’re trying to buy a home in Central Indiana – or just about anywhere in the country – you need equal parts patience, persistence, and prayer.
The current real-estate market is unlike any we have ever seen. Ever! In 2020, home values shot up an astounding 17%. In some parts of the country, I’ve seen figures as high as 42%. In 2021, values are expected to moderate, but I’m still waiting. In contrast, in a typical year, home values will rise 4%-5%.
In addition, today, there are fully 50% fewer homes on the market than this time last year, which translates to less than “three months’ supply of homes on the market, the lowest on record since the turn of the century,” says Matthew Speakman, an economist at Zillow.
How the heck did we get here?
First, there’s been “an unprecedented uptick in the average length of ownership for the average American,” according to iProperty Management. “Homeowners have never remained in one home or their first home this long before. In the second quarter of 2019, the average tenure of American homeownership reached 8.09 years, a record high.
“In the seven years before the housing market crash in 2007, the average time homeowners remained in a home was close to 4 years.” Today, rising home prices, an uptick in interest rates, and a desire to “age in place,” have combined to keep owners in their homes longer.
Second, in 2020, “many sellers decided to pause their moving plans because of health concerns and financial uncertainty during the pandemic,” according to Keeping Current Matters (KCM), a publication for realtors.
Third, because homeowners have seen the equity in their homes rise dramatically, many are taking the opportunity to purchase investment properties without having to sell their current residence. In effect, this takes two homes off the market – the one the homeowner continues to live in, and the one which becomes a rental. In 2020, according to iProperty Management, more than half of all the homes in the United States were rentals (42%) compared with those that were owner-occupied (82.8%).
Finally, builders have underestimated the demand for new homes for some time. According to a January 2021 article in Forbes, “Coming out of the 2020 recession, there was a supply shortage of 2.5 million units, according to research by Freddie Mac. Residential construction began to slowly ramp up in the latter half of 2020 after Covid shut down home building in the spring, typically the busiest season for new construction.”
Enough with the problems, already. Bring on the solutions. Okay. Here we go.
#1: A cautious return to normal. Now that vaccines are being distributed, many homeowners who decided not to sell in 2020, will enter the market later this year as they begin to feel more comfortable having their homes shown, having less financial uncertainty, and simply feeling more secure about life in general.
#2: More new homes will be built. The National Association of Home Builders (NAHB) expects 2021 to bring strong growth in new-home construction. “This will be the first year for which total single-family construction will exceed 1M starts since the Great Recession,” states the NAHB.
#3. Those Impacted financially by the economic crisis. Experts do not anticipate a large wave of foreclosures coming to the market, given the forbearance options afforded current homeowners throughout the pandemic. Some homeowners who have been impacted economically will, however, need to move this year. There are also homeowners who did not take advantage of the forbearance option or were already in a foreclosure situation before the pandemic began. In those cases, homeowners may decide to sell their homes instead of going into the foreclosure process, especially given the equity in homes today, says Lawrence Yun, chief economist at the National Association of Realtors (NAR).
The bottom line? It looks as if the number of homes for sale will increase moving forward in 2021. With fears of the pandemic starting to ease, new homes being built, and additional listings coming to market prior to foreclosure, there’s hope if you’re looking to buy this year.
And lastly, if you’re thinking of selling, doing so while demand for your home is high can create an outstanding moving option for you.