On Real Estate & More – May 2021

If you are currently in the real estate market, you already know it’s a seller’s market with little inventory and a lot of competition for homes. Therefore, when I came across this blog post on the National Association of Realtor (NAR) website by research economist Scholastica Cororaton about the 2021 spring market, some of the statistics were so stunning I thought it was important to share.

According to NAR, the 2021 spring market is starting off at the lowest level of inventory of homes on the market in nearly 40 years, with job growth ramping up amid an aggressive fiscal policy and continued low mortgage rates. Homebuyers are likely to face the most competitive spring market in years. Here are the latest indicators on inventory, pending sales, home prices, job growth, and mortgage rates that are pointing to a hot spring market in a broad swath of metro areas.

The inventory of existing and new single-family homes for sale is the lowest since 1982. As of the end of February 2021, the inventory of homes for sale stood at a historic low of 1.07 million (1.03 million of existing homes, 42,000 new single-family homes), which is equivalent to just 1.8 months of the average monthly sales of 582,917 (518,333 of existing homes, 64,583 of new single-family homes), a near historic low (1.7 months in December 2020 and January 2021 were the historic lows).

Historically, six months of the average monthly demand has kept home prices from overheating. At six months of inventory, there should be 3.49 million homes on the market, but as of February, only 1.07 million homes are on the market, resulting in a gap of 2.4 million homes for sale.

There’s a dire lack of inventory across all metropolitan areas. Realtor.com reported that only 4 out of 381 metro areas or just 1% of metropolitan areas had more active listings in March 2021 compared to one year ago (Odessa, Texas, Urban Honolulu, Midland, Texas, and Harrisonburg, Virginia). The decline in active listings is mind-boggling, with 375 out of 381 metro areas posting double-digit declines.

A leading indicator of home sales and a good indicator of the demand for homes is pending listings. In 70% of metro areas, the number of pending listings that can be expected on a given day in the month was higher than the number of active listings that can be expected on any given day in the month.

The ratio of pending sales to active listings is an indicator of how hot the market is. The top 5 metro areas with the largest ratios were Provo-Orem, Utah (6.9); Boise City, Idaho (5.0); Jacksonville, North Carolina (5.0); Fayetteville, North Carolina (4.6); and Bremerton-Silverdale, Washington (4.2).

Prices are the best indicator of demand and supply fundamentals. As of March, 64% of metro areas are posting double-digit year-over-year price appreciation, based on Realtor.com® listings. The strongest price appreciation is occurring in the metro areas of Utah, Idaho, and Montana: Coeur D’ Alene, Idaho (76.9%); Great Falls, Montana (68.4%); Twin Falls, Idaho (58.4%); Logan, Utah, Idaho (54%), and St. George, Utah (51.2%).

Mortgage rates are still trending at historic lows, with the 30-year fixed rate mortgage falling to 3.13% in the week of August 8, still a tad lower than 3.33% one year ago (April 10). NAR’s Chief Economist Lawrence Yun expects mortgage rates to hover at below 3.5% in 2021. Mortgage rates are likely to go up, not down. Inflation rates are still trending at below 2% and with the average inflation targeting adopted by the Federal Open Market Committee, the federal funds rate can remain at 0 to .25% in 2022. However, the 30-year fixed mortgage rate is driven by the 10-year Treasury Note, and as the economy continues to improve, current bond investors will tend to shift away from lower-yielding Treasury Notes and move into the higher-yielding equities (stocks) market, which will lead to lower demand for bonds and higher interest rates. Buyers expecting higher mortgage rates will tend (and should) get into the homebuying market now, pushing up demand.

Employment continues to recover under highly accommodating monetary policy and a strong dose of fiscal expansion (hovering at $5 trillion with the passage of the $1.9 trillion 2020 CARES Act, $900 billion 2020 Consolidated Appropriations Act of 2021, and the $1.9 trillion 2021 American Rescue Plan).

In March, the economy created 916,000 jobs. Since May 2020, the economy has created 13.9 million nonfarm payroll jobs, with the number of lost jobs now at just 8.5 million. Counting the self-employed, 17.5 million jobs have been created, with the unemployment rate falling to 6%.

The job recovery is broad-based, with all industries showing jobs gains since May (although only the finance and insurance industry and federal government have higher nonfarm employment in March 2021 compared to peak employment in February 2020).

The bottom line: the real estate market in our region has considerably more demand than inventory. The need for additional inventory is great, so if you are thinking about selling, now is definitely the time!