{"id":140611,"date":"2021-11-08T11:30:58","date_gmt":"2021-11-08T18:30:58","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=140611"},"modified":"2022-07-27T15:59:09","modified_gmt":"2022-07-27T21:59:09","slug":"2021-housing-market-update","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/2021-housing-market-update","title":{"rendered":"Housing Market Data During the Pandemic Adds Up to Good News for Investors"},"content":{"rendered":"\r\n

As we enter the final months of what has been a wild year for the housing market, key data suggests that we are slowly heading toward a slightly<\/em> healthier and more balanced housing market as we approach 2022.<\/p>\r\n\r\n\r\n\r\n

According to national real estate brokerage firm Redfin, the median home price in the U.S. reached $376,000 in September 2021\u2014the last month for which data is provided. In order to take a more detailed look at the housing market before and during the pandemic, I\u2019ve provided some charts so we can evaluate the data and make sense of the market.<\/p>\r\n\r\n\r\n\r\n

Actual versus seasonally adjusted<\/h2>\r\n\r\n\r\n\r\n

If you look at the chart below, you\u2019ll see that there are two ways of measuring home prices (and some of the other data we\u2019ll examine here): actual<\/em> and seasonally adjusted.<\/em><\/p>\r\n\r\n\r\n\r\n

This is important to note, because if you look at actual prices (the blue bars), it appears that the median home price is going down\u2014and it is. But prices almost always drop after the summer. Look at the data in the chart going back to 2016. Prices pop over the summer, then drop starting in September before bottoming out in January and then starting to recover.<\/p>\r\n\r\n\r\n\r\n

For this reason, when trying to understand the trend and direction of the housing market, it\u2019s important to look at seasonally adjusted data (the orange line). It\u2019s an analysis technique that controls for seasonal variations in data to give us a better look at what\u2019s really going on. When looking at that measurement, we can see that home prices continue to set new highs on a seasonally adjusted basis. The median home price is up 13.6% over this time last year, which is what\u2019s really important.<\/p>\r\n\r\n\r\n\r\n

\"\"<\/figure>\r\n\r\n\r\n\r\n

This is not surprising\u2014most trusted sources are forecasting housing prices to continue growing through 2022 (and I agree)\u2014but I wanted to clear up any potential confusion about what\u2019s happening with prices. Even though the housing market is experiencing its normal seasonal decline, on a seasonally adjusted basis, home prices continue to see strong growth.<\/p>\r\n\r\n\r\n\r\n

Supporting the strong price growth is high total home sales, as seen in the graph below.<\/p>\r\n\r\n\r\n\r\n

\"\"<\/figure>\r\n\r\n\r\n\r\n

Note that this dataset follows the same seasonal pattern as prices: Demand (as represented by total homes sold) drops considerably over the winter and peaks over the summer.<\/p>\r\n\r\n\r\n\r\n

On a seasonally adjusted basis, home sales are very strong. Sales are down from a year ago (\u20134.9%), but last year contained a lot of anomalous data. To me, what\u2019s important is that home sales remain above where they were at this point in the year in 2019.<\/p>\r\n\r\n\r\n\r\n

I think this is key because the total sales data is a great measure of the overall health of the market. Prices have increased a lot over the last year, but that hasn\u2019t slowed down the housing market at all. In fact, home sales are on an upward trend from a seasonally adjusted perspective, which means demand is there and the foundation of the housing market remains strong.<\/p>\r\n\r\n\r\n\r\n

New listings and active inventory<\/h2>\r\n\r\n\r\n\r\n

Next, I want to clear up something about inventory. There are a lot of ways to measure inventory, each of which tells us something different.<\/p>\r\n\r\n\r\n\r\n

The metric I rely on most these days is new listings.<\/em> This measures how many new properties are put up on the market each month.<\/p>\r\n\r\n\r\n\r\n

\"\"<\/figure>\r\n\r\n\r\n\r\n

I like this metric because it tells us, in the simplest way possible, how many people are selling their properties. As you can see, new listings are not doing so badly\u2014counter to the narrative out there that \u201cthere is no inventory.\u201d<\/p>\r\n\r\n\r\n\r\n

Yes, new listings are trending downward, even on a seasonally adjusted basis, but they remain above pre-pandemic levels\u2014which, again, is key in my opinion. There was a concerning time in early 2021 when very few new listings were hitting the market, but that is no longer the case. People are selling properties at higher than pre-pandemic levels, and I don\u2019t think we\u2019ll see any significant declines to new listings in the coming months.<\/p>\r\n\r\n\r\n\r\n

The illusion of \u201cno inventory\u201d<\/h2>\r\n\r\n\r\n\r\n

So what\u2019s with the narrative that \u201cthere is no inventory\u201d? It all comes down to how inventory is defined. So far we\u2019ve looked at new listings, which are doing well compared to pre-pandemic levels. But other common measures of inventory, like active inventory<\/em> (how many houses are for sale at a given time) or days on market<\/em> (how long it takes for the average house to sell), are extremely low right now.<\/p>\r\n\r\n\r\n\r\n

What\u2019s going on? One measure of inventory, new listings, is healthy, but a second measure of inventory, active inventory, is extremely low.<\/p>\r\n\r\n\r\n\r\n

The answer is market competition\u2014otherwise known as demand. In plain English, what is happening is pretty clear. A lot of people are listing their homes for sale, as demonstrated by new listings. Yet demand is so strong right now that homes are flying off the market very quickly, so the number of homes for sale at any given time (active inventory) is low.<\/p>\r\n\r\n\r\n\r\n

This distinction is important because there are fears that \u201conce inventory returns,\u201d the market will crash due to a glut of supply. But people are already selling their homes at a healthy clip. Look at the chart above. Inventory, as measured by new listings, is solid following the dip in early 2021. It\u2019s just that demand is exceeding supply and pushing prices upward.<\/p>\r\n\r\n\r\n\r\n

Days on market and sale to list ratio<\/h2>\r\n\r\n\r\n\r\n

To analyze market competitiveness and demand, let\u2019s look at two key indicators: days on market (DoM)<\/em> and sale to list ratio (S\/L).<\/em><\/p>\r\n\r\n\r\n\r\n

\"\"<\/figure>\r\n\r\n\r\n\r\n

First, let\u2019s just observe how insane the above chart is. DoM has been on a downward trend for nearly a decade\u2014but things got really wild since the pandemic. A decade ago, DoM was about 70 days; now we\u2019re barely above 20 days.<\/p>\r\n\r\n\r\n\r\n

On a seasonally adjusted basis, DoM is pretty flat right now. Not exactly great news\u2014I\u2019d love to see it climb back up\u2014but it\u2019s better than the freefall we saw last year and into the beginning of 2021. On a non\u2013seasonally adjusted basis, things are trending in a solid direction.<\/p>\r\n\r\n\r\n\r\n

In the chart below, when we look at the S\/L, which measures how much a house sells for versus what it was listed for, we see a more encouraging trend. In a perfectly balanced market, we\u2019d expect an S\/L of 100%: a house sells for exactly what it lists for. A ratio above 100%, as we see below, indicates a strong seller\u2019s market.<\/p>\r\n\r\n\r\n\r\n

\"\"<\/figure>\r\n\r\n\r\n\r\n

Similar to DoM, this measure of demand has been trending toward a seller\u2019s market for years, but went nuts at the beginning of the pandemic. But on an actual basis and a seasonally adjusted basis, things are starting to change. Yes, I know, they haven\u2019t changed a lot, but it appears the rise has peaked and is starting to come back down.<\/p>\r\n\r\n\r\n\r\n

When looking at DoM and S\/L together, to me it says that we are still very much in a seller\u2019s market, but the madness appears to have peaked.<\/p>\r\n\r\n\r\n\n \n

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What\u2019s expected for 2022<\/h2>\r\n\r\n\r\n\r\n

I predict that we\u2019re heading toward a slightly more balanced housing market in 2022.<\/p>\r\n\r\n\r\n\r\n

Prices are still up big year over year, but are becoming more reasonable. Home sales are strong and indicate a solid foundation for the market, and New Listings are up from their concerning start to the year. Overall, as I\u2019ve said many times before, I think we\u2019re still on track for above-average growth in 2022, but slower growth than in 2021. I\u2019ll have more on my predictions for the 2022 housing market in a few weeks.<\/p>\r\n","protected":false},"excerpt":{"rendered":"

As we enter the final months of what has been a wild year for the housing market, key data suggests that we are slowly heading toward a slightly healthier and […]<\/p>\n","protected":false},"author":108611,"featured_media":140612,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[8],"tags":[],"class_list":["post-140611","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-trends"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/140611","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/108611"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=140611"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/140611\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/140612"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=140611"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=140611"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=140611"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}