As I noted a few months ago and as many others have observed, one of the oddest things about this pandemic-induced recession is that housing prices have continued to increase during it. My presumption was that this had been caused by the Fed’s quantitative easing and a reduced supply of housing available for sale. As Zillow’s senior principal economist Skylar Olsen pointed out, “Demand absolutely just got a kick in the gut, but at the same exact time, so did supply.”
And indeed, that seems to be the real driver: Inventory is at historic lows.
And a new report from Realtor.com really puts this into perspective: “Since the beginning of the COVID pandemic in March, nearly 400,000 fewer homes have been listed compared to last year, leaving a gaping hole in the U.S. housing inventory.”
As should be no surprise, sellers are hesitant to list in such a volatile and unpredictable environment. According to Realtor.com’s Director of Economic Research Javier Vivas,
“Sellers are more reluctant to list their home given the uncertainty over the economy and the pandemic environment. Buyers on the other hand, especially hungry first timers, remain largely unfazed by the challenges, and are motivated by low mortgage rates and the fear of missing out on the right home.”
Key Findings From Realtor.com’s Report
The report notes the following important findings:
- Since March of this year, 2.91 million homes have been listed as compared to 3.3 million homes during the same period of time in 2019, a reduction of 390,000.
- This represents a decrease of 11.8%.
- Not coincidentally, list prices have increased 11.1% this year, which well-outpaces inflation (forecasted to be approximately 0.62% for 2020).
- Homes are selling in 53 days, 12 days faster than the same time last year.
- This represents a decline of 18.5%.
- Realtor.com’s index for the strength of the housing market is 107.2 (a value of exactly 100 “means the market has recovered to January 2020 pace”). This is “7.2 points stronger than it was pre-COVID” and almost 24 points higher than the trough in early May of 2020.
- The amount of inventory on the market is an amazing 39% less than at the same time in 2019.
And further, the report notes that “with the typical seasonal slowdown approaching, relief in terms of more available homes for sale is unlikely.” Thus, it is no surprise that housing prices have continued to increase. And while this trend may go through the winter, it will likely slow down or reverse in the relatively near future as housing becomes more unaffordable across the country and the recession continues to take its toll. Even still, the housing market is unlikely to collapse.
Effects on Local Markets
Of the 100 local markets the report discusses, only a single solitary market saw housing inventory increase, and that was urban Honolulu, Hawaii, which saw total listings increase year-over-year by 27.4%.
Only two markets decreased by less than 10%: Las Vegas-Henderson-Paradise, NV (6.4%) and New York-Newark-Jersey City (9.1%). Indeed, only two more markets decreased by less than 20%: San Francisco-Oakland-Hayward, CA (13.9%) and Miami-Fort Lauderdale-West Palm Beach (14.9%).
The rest of the metro areas saw year-over-year decreases in inventory between 20.4% and 67.4%.
The top five markets were:
- Boise City, Idaho: -67.4%
- Stockton-Lodi, California: -62.1%
- Allentown-Bethlehem-Easton, Pennsylvania: -59.0%
- Youngstown-Warren-Boardman, Ohio: – 57.8%
- Fresno, California: -57.3%
As might be obvious by California having metro areas appear in both the bottom and top of inventory changes, such effects don’t seem to be specific to any broad geographic area in the country. The main point is simply that almost across the board, to one degree or another, inventory is down… way down.
Likewise, the median days on market are down in 93 of the 100 markets and prices are up in all but one (urban Honolulu again).
Inventory is at or near historic lows right now. That pushes prices up and makes it all the harder to find good deals. Thus, as I’ve noted before, it’s not the best market to be aggressively buying in—and new investors especially need to be careful.
That being said, the market will likely stay this way for a little while, especially as we head into the winter, when inventory tends to reduce. It will likely dip thereafter, but these things are impossible to predict with a strong degree of accuracy. So, while it’s important to be careful, it’s also not worth your time to just twiddle your thumbs and wait for a 2008-like crash to happen again. Such things don’t happen very often, and we’re quite unlikely to see a crash of that size this time around.
Just be careful and don’t feel any urgency to buy in this very tight seller’s market.
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