The US housing boom helped wealthy homeowners the most

House for sale US
A house’s real estate for sale sign shows the home as being “Under Contract” in Washington, DC, November 19, 2020.

  • The housing market rally has largely benefitted wealthy homeowners as prices soar at record pace.
  • Sales of homes priced over $1 million are up 245% year-over-year. Homes worth under $100,000 are down 11%.
  • The gap is just one of several K-shaped trends in the uneven economic recovery.
  • See more stories on Insider’s business page.

Like many other aspects of the US recovery, the housing market’s boom has been anything but even.

The market rally started as a broad upswing. After home sales tumbled at the start of the pandemic, surging demand and low mortgage rates spurred a nationwide buying spree. But as the boom charged forward, a K-shaped split emerged in which type of homes were rapidly gaining value and which were being left by the wayside.

The term “K-shaped recovery” has come to exemplify uneven elements of the US’s economic rebound. Wealthier Americans generally fared better through lockdowns as they switched to remote work and leaned on savings. Low-income Americans and minorities, however, have longer recoveries ahead of them after being disproportionately hit by the COVID-19 recession.

Existing home sales data published Tuesday reveals just how wide that gap has become in housing. Sales of homes worth at least $1 million have surged 245% year-over-year, according to the National Association of Realtors. That’s a larger jump than any other price category.

Conversely, sales of homes worth less than $100,000 have plummeted 11% from May 2020 and sales of homes worth between $100,000 and $250,000 dipped 1.7% through the year.

The disparities point to growing inequity in the US housing market. Homes worth up to $250,000 accounted for about 30% of sales in May, while those worth more than $1 million only represented 6.3% of sales.

The sales gap widened even further in the spring. As dire inventory shortage drove home-price inflation to its fastest rate since the mid-2000s market bubble with demand handily outstripping supply, sales for the most expensive homes soared even higher, and sales of homes costing less than $100,000 dropped lower.

Taken together, the country’s wealthiest homeowners benefitted most from the price rally, and those living in the country’s least-expensive homes have largely missed the market upswing.

Other data suggest the trend will continue through the summer. Housing starts have wavered in recent months as expensive lumber costs and lot shortages cut into homebuilding. And sales of new homes slid again in May, suggesting contractors are far from meeting massive demand with new supply.

New homes that have gone to market are also more skewed to wealthier buyers than a year ago. Where the majority of new homes in May 2020 were priced between $200,000 and $299,000, the majority now cost between $300,000 and $399,000, according to the Census Bureau.

The shift has little to do with more expensive units hitting the market, Ali Wolf, chief economist at housing platform Zonda, wrote in a Wednesday tweet. Instead, the change reflects price growth over the last year. Roughly 95% of contractors raised prices from April to May, and most of the increases averaged $10,000 or more, Wolf said.

Addressing the shortage will take a massive effort, according to NAR’s estimates. Decades of underbuilding and losses of existing homes left the US with a supply shortage of about 6.8 million houses, according to a report published earlier this month.

Builders will need to accelerate construction to 2 million units per year should they aim to fill the hole over the next decade, NAR added. That would be a sizeable jump from the May pace of 1.57 million homes per year.

“There is a strong desire for homeownership across this country, but the lack of supply is preventing too many Americans from achieving that dream,” Lawrence Yun, chief economist at NAR, said in the report.

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At least 3 US homes have recently sold for more than $1 million over asking price. It’s the latest sign that the housing market has gone completely off the rails.

House for sale under contract
A house for sale in the Washington, DC, area.

  • A Washington, DC-area home recently sold for $1 million over asking price.
  • Two Bay Area homes have achieved the same feat in 2021.
  • The sales are symptomatic of a frenzied market driven by surging demand and low interest rates.
  • See more stories on Insider’s business page.

A Washington, DC-area home has sold for $1 million over asking price, making it at least the third house to achieve that feat amid a crazed US housing market.

The Washington Post’s Kathy Orton reports that the five-bedroom, five-bathroom home, which spans 5,000 square feet, was listed for $3,495,000 on April 16. The house, located in the wealthy enclave of Chevy Chase Village in Maryland, received seven offers in three days and sold for $4,540,000 – over $1 million over asking.

The deal mirrors similar sales on the other side of the country. According to SF Gate’s Andrew Chamings, a seven-bedroom home in Mountain View, California, also recently sold for $1 million over asking. The 4,365-square-foot home, located just a few miles from Google’s headquarters, was listed at $4.5 million; it sold six days later for $5.5 million.

And earlier this year, a Berkeley, California, house almost doubled its price: The home was listed at $1.3 million, received 29 offers in just over 10 days, then sold for $2.3 million, according to SF Gate.

’10 to 15 buyers for every seller’

These sales are representative of a feverish real estate market nationwide. Low interest rates during the pandemic combined with a desire for more space and the ability to work remotely has led to bidding wars, surging prices, and low inventory in many markets across the country.

Further south in California, near Sacramento, a $400,000 house recently received 122 offers in two days, later selling for above asking price.

Read more: Buying a home is a lot harder than it was at the start of the pandemic. Experts say you should wait and avoid buyer’s remorse.

Realtors who spoke with Insider described working nonstop to keep up with demand. One realtor said she had to schedule time with her family; another said she often works seven days a week.

Glen Clemmons, a broker and realtor for Costello Real Estate and Investments in North Carolina, told Insider that both he and his buyers feel “beat up.”

“I had one client who wrote 15 offers before they finally got one, and that’s exhausting,” he said.

Sean Waeiss, a broker and the owner of Wise Property Group in Austin, told Insider that there’s been a “rocket ship” of demand in the first several months of 2021.

“We have 10 to 15 buyers for every seller that we have and … when we’re submitting offers, they’re getting 10, 12, 15, 18 offers on the house,” he said. “That’s kind of how we’ve moved since April of last year. And it doesn’t seem to be slowing down.”

The skyrocketing prices and low inventory mean that many lower-income buyers are getting boxed out of the market, but wealthy homebuyers are purchasing properties at a rapid clip. According to a report from Redfin, high-end home purchases climbed 26% versus a year ago during the three months ending April 30 – during the same period, sales of mid-priced homes and affordable homes increased about 15% and 18%, respectively.

That luxury home boom comes as a high rate of pricey homes hit the market right now, meaning there are more options for well-off homebuyers, according to Redfin. The combination of a strong stock market, ballooning savings, and remote work has allowed the rich to snap up homes – even if they need to pay $1 million over asking.

Read the original article on Business Insider

5 trends fueling one of the hottest housing markets in US history

Housing market
  • The housing market is on fire, with a supply shortage driving prices to record highs.
  • But alternative signals show the market isn’t just tight, it’s changing in much more fundamental ways.
  • Here are the five structural shifts that are fueling the red-hot US housing market.
  • See more stories on Insider’s business page.

The housing market is on fire.

What began as a pickup in demand early in the pandemic has evolved into an all-out buying spree. Sales of new and previously owned homes, while off their peaks, remain elevated. Construction has picked up somewhat, but contractors are struggling to shore up supply. With inventory sitting near record lows, price growth has accelerated to rival the 2000s housing bubble.

Reports published Tuesday confirmed the boom is alive and well. Prices soared through March at the fastest rate since 2005, according to S&P CoreLogic. Separately, Census Bureau data showed new single-family home sales slowing 5.9% through April. Still, the sales pace sits well above the pre-pandemic norm.

But it’s not just conventional gauges posting shocking superlatives – fundamental change is afoot in US housing. Alternative data, from lumber prices to the realtor-to-listing ratio, show a handful of structural shifts taking place throughout the market. Glenn Kelman, CEO of real-estate brokerage Redfin, unpacked several of them on a Twitter thread that racked up more than 14,000 likes in less than 48 hours.

Here are the five major changes reshaping the US housing sector.

1 – Buyers face a persistent shortage of available homes

Home for sale
A real estate sign is seen in front of a house for sale in West Los Angeles on November 20, 2020.

At its core, the market boom is simply a result of too few homes. Economists are largely confident that, while trends are similar to the mid-2000s bubble, it’s a nationwide supply shortage driving prices higher, and not risky lending practices.

  • More realtors than listings

The number of available homes in the US totaled 1.16 million at the end of April, according to the National Association of Realtors. NAR ended last month with 1.48 million members.

The association’s membership has exceeded listings through much of the year as sales bite into home availability.

  • Historically low inventory

The national supply of available homes in the US plummeted to record lows at the start of the pandemic and have only just risen from those levels through 2021. The monthly inventory rose to 4.4 months in April, but the bounce has as much to do with a slowing pace of sales as it does with a pickup in construction.

  • Homes selling at a record pace

When homes are coming up for sale, they aren’t staying on the market all that long. The average home now sells in a record-low 17 days, Kelman wrote on Twitter.

2 – People are fleeing cities for cheaper locales

moving
BOSTON, MA – SEPTEMBER 1: Edward Cardona (left) and Cameron Secorsky take it carry a house plan on top of a couch as they move in Allston, Sept. 1, 2016. September 1st in Boston is also known as “September Worst” because of the chaos of moving, and “Allston Christmas” because of all the things that are left on the curb for the taking when people move in and out of apartments. (Photo by David L. Ryan/The Boston Globe via Getty Images)

The story of the 2020-2021 housing market is also one of migration. Americans largely fled densely populated cities for suburbs and traded their apartments for homes while mortgage rates were low. And after years of intense crowding in metropolitan areas, people seeking more space during the work-from-home period rushed to less populated states.

  • Low-tax states seeing huge inflows

Attractive tax rates seemingly played a major role in the moving bonanza. Four people moved into low-tax states for every one that left, Kelman said. That ratio rose to 5:1 in Texas and 7:1 in Florida.

  • Moving families face a new status quo

Americans who moved during the pandemic took a few risks. In a Redfin survey of 2,000 homebuyers, 63% said they bid on a home they hadn’t seen in person yet.

Separately, those moving to low-tax states enjoyed far lower housing costs. In many instances, the money saved allowed one parent to stop working, and many buyers are retiring early, Kelman said in a Wednesday tweet.

  • Inventory and prices up in SF and NYC

Still, some of the country’s biggest cities aren’t down for the count. Inventory has swung higher in New York City and San Francisco by 28% and 77%, respectively, according to Kelman. Yet prices are increasing steadily in both markets, suggesting that, while many are moving out, enough are moving in to support already lofty prices.

3 – It’s getting more and more expensive to build homes

construction workers building home
Construction workers build a new Centex home on Tuesday, June 23, 2020, in Houston.

The simplest solution to slowing homes’ rapid price growth would be to increase supply. Yet the combination of a historic surge in demand with supply-chain bottlenecks as the economy reopened have hindered contractors.

  • Lumber prices exploded higher

Most recently, surging lumber costs cut into builders’ efforts. Prices soared to record highs earlier in May and closed 280% higher year-over-year on Tuesday.

  • Not enough building space

Even if lumber cost less, there’s scant room to build homes. The New Home Lot Supply Index — which tracks lots ready for building — fell 10% to a record low in the first quarter, according to housing analytics firm Zonda.

Even the firms that have empty lots are running behind in converting them to sellable homes. About 242,000 authorized homes hadn’t been started yet in April, the Census Bureau said last week. That’s the highest level since 1979. 

  • Builders waiting for the opportune moment

The various shortages and bottlenecks have led builders to hit the brakes and wait for profitability to rebound. Nearly one-in-five contractors surveyed by the National Association of Realtors in April said they’re delaying construction or sales.

About 47% said they added escalation clauses to contracts last month. The clauses allow contractors to lift homes’ selling prices to offset an increase in building costs.

4 – Pricey construction, unrelenting demand is driving stronger home inflation

housing

With builders unable to meet demand with new supply, prices predictably shot through the roof. Experts see home-price inflation staying hot into 2023, and with selling prices already elevated, a long rally could further dent home affordability across the US.

  • Prices hit record highs

While the rate of sales has cooled slightly, price growth remains strong. The median selling price of new homes rose to a record-high $372, 400 in April, the Census Bureau said Tuesday.

The median price for previously owned homes rose to a record of its own last month. The average existing home cost $341,000 in April, the National Association of Realtors said on May 21.

  • Sell-over-ask at record highs

For those looking to sell, there’s never been a better time. Homes are selling on average for 1.7% above their asking price, Kelman wrote on Twitter. That’s the largest average overshoot on record.

 

5 – Americans increasingly prioritize value and space

open house homebuyers

Still, not all buyers are losing out as the market boom charges onward.

  • Two-thirds of buyers say they snagged great deals

A Redfin survey of 600 homebuyers found that about two-thirds of people who moved during the pandemic bought a unit that was the same size or larger than their previous home. The same share of buyers spent the same or less on housing, the firm added.

  • Most had more cash after they moved

Moving during the pandemic also tended not to break the bank. Of the Americans reporting they moved into larger homes, 78% said they have the same amount of disposable income or more after their move, Kelman said.

“Idaho home price could triple and still seem affordable to a Californian,” the Redfin CEO said in a tweet.

Read the original article on Business Insider

5 warning signs in the real-estate market that recall the mid-2000s housing bubble

housing
  • Several gauges of housing market activity mirror trends seen just before the bubble burst in 2008.
  • Experts see the current boom as far safer than the prior rally, citing stronger lending requirements.
  • Still, here are trends ranging from home prices to construction activity that resemble 2005 and 2006.
  • See more stories on Insider’s business page.

Housing-market monitors keep repeating the phrase “since 2005,” except when it’s “since 2006.” That’s worrying – both superlatives refer back to the peak of a historic real-estate bubble.

Low mortgage rates and massive demand have powered a supercharged rally for US housing over the last year. Americans snapped up nearly all the available supply of new and previously owned homes amid huge population shifts from cities to suburbs. Chronic underbuilding after the financial crisis left contractors struggling to meet the new demand with adequate supply. That imbalance has since pushed selling prices skyhigh.

The boom’s frenetic nature has led many to compare the current market with that seen just before the infamous 2008 crash. Experts have been quick to note that, while some similarities exist, the latest price surge has more to do with a lack of inventory than dubious lending standards.

“I don’t see the kind of financial stability concerns that really do reside around the housing sector,” Federal Reserve Chair Jerome Powell said last month. “We don’t see bad loans and unsustainable prices and that kind of thing.”

But just because the market looks different on a macro level doesn’t mean there aren’t strong similarities to the period just before the bubble burst. Here are five housing-market signals flashing the same signs seen about 15 years ago.

(1) CoreLogic Home Price Index

Possibly the most basic indicator of just how much demand has outstripped supply is nationwide price indexes.

The headline price gauge for housing-data authority CoreLogic soared 11.3% year-over-year in March, according to a Tuesday report. That marks an acceleration from the February rate of 10.4% and the fastest rate of price growth since March 2006. On a month-over-month basis, prices rose 2% from their February levels.

The financial analytics firm sees that momentum cooling over the next year. A persistent wearing-away of home affordability will likely curtail some purchases, and accelerated construction will shore up supply in the months ahead, CoreLogic said. Still, year-over-year price growth should reach 3.5% as lingering demand keeps the rally alive, Frank Martell, the president and CEO of CoreLogic, said in a statement.

“With prospective buyers continuing to be motivated by historically low mortgage rates, we anticipate sustained demand in the summer and early fall,” he said.

(2) S&P CoreLogic Case-Shiller Index

Separately, a more city-focused measure of home-price inflation notched a similar reading last week. Home prices in metropolitan areas gained 12% year-over-year in February, according to the S&P CoreLogic Case-Shiller Home Price Index, the headline index of US home prices for more than three decades. The reading signals the strongest price growth since 2006 and edged slightly higher from the prior annual gain of 11.2%.

Inflation was broad-based. All 20 cities saw home prices climb, and 19 cities saw year-over-year price growth accelerate from January to February. Prices rose the most in Phoenix, San Diego, and Seattle, according to S&P.

(3) Selling prices for new vs. previously owned homes

Digging deeper into home sales reveals an unusual phenomenon unseen since the previous boom. For the first time since 2005, Americans spent more on previously owned single-family homes than on new construction, according to March housing data from the Census Bureau and the National Association of Realtors.

The dynamic signals Americans are prioritizing buying any available home instead of hunting down a new unit.

To be sure, monthly sales data is volatile and the premium for new homes could reemerge in April data. But with supply still under pressure and CoreLogic’s Tuesday report showing prices broadly climbing higher last month, the phenomenon might linger for some time.

(4) Home starts

As gauges of market demand soar to 15-year highs, so have measures of upcoming supply. Housing starts surged nearly 20% in March as contractors rushed to address the lack of new homes for sale. The leap places the annual rate of starts at its highest since 2006 and serves as the largest month-over-month gain since 1990. Permits for new residential construction also increased, albeit at a slower rate.

The rebound was somewhat prompted by winter storms curbing construction activity in February. But for the most part, a historic shortage of available homes fueled the pickup in building. Just 1.07 million existing homes were up for sale in March. That sum, at the current purchase rate, would be snapped up in only two months.

Homebuying has slowed from its pandemic-era peak, giving contractors slightly more time to meet the elevated demand. With millennials hitting peak homebuying age and lumber prices expected to decline, some economists see the rebound in construction paving the way for more moderate price growth.

(5) Home equity take-out

The sustained acceleration of home price growth has also lead owners to take out equity at the same rate seen in the mid-2000s. Homeowners refinancing their mortgages pulled roughly $50 billion in equity out of their homes throughout the fourth quarter of 2020, according to data from Freddie Mac and the Urban Institute.

Mortgage rates, while still at historically low levels, reversed their pandemic-era decline through the first quarter as investors braced for the economic recovery to give way to higher borrowing costs. Those higher rates erased the rate-reduction incentive for refinancing, making equity take-out the top reason to refinance, the Urban Institute said in a report published April 27.

Although equity take-out on its own is normal, the sharp uptick seen last year could be cause for concern. Some economists have criticized the Fed’s ultra-accommodative policy for encouraging risk-taking across various markets. Increased equity take-out presents new financial risks for participating homeowners since a decline in home prices from their skyhigh levels could cut deeply into their balance sheets.

And while equity take-out sits at its 2005 level, it is still well below the 2006 peak. Yet with mortgage rates expected to climb over the next few years, take-out refinancing could accelerate further.

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Here’s how fast homebuilding is catching up to the record-low number of houses for sale

UBS STARTS
Source: UBS.

  • Housing starts surged 19.4% in March to their highest level since 2006, the Census Bureau said.
  • The rebound was fueled by a massive supply shortage and a return to work after harsh winter storms.
  • The supply-demand imbalance sent prices soaring during the pandemic and cut into home affordability.
  • See more stories on Insider’s business page.

Insider has been warning of a potential inventory crisis in the housing market since last summer. It’s just gotten worse since then, with a record low number of homes for sale.

Builders are racing to catch up.

New residential construction surged more than anticipated in March as builders rushed to address the massive supply-demand imbalance in the housing market.

Home starts leaped to a seasonally adjusted annual rate of 1.74 million units last month, the Census Bureau said Friday. That’s up 19.4% from the revised February reading. Economists surveyed by Bloomberg expected starts to rise to a rate of 1.61 million. The reading places housing starts at their highest level since 2006 and marks the largest month-over-month gain since 1990.

The strong rebound was partially driven by a return to work after harsh winter storms hampered construction in February. Permits for residential construction also gained in March, though at a more modest rate.

“We may have overestimated the immediate storm-rebound by a little, and so expected more rebound to come in starts in April,” UBS economists led by Samuel Coffin said in a note. “But with permits on target in March, we continue to see the underlying trend in single-family activity at about a 1.2 million unit annual rate.”

The upswing in home construction comes as the market sits mired in a historic supply shortage. Low mortgage rates spurred a buying spree throughout the pandemic, as did a mass exodus from cities to suburbs. The pace of home sales cooled somewhat in February, but inventory remains at a record-low 1.03 million, according to the National Association of Realtors. At the current rate of purchases, that supply will only last for two months.

The shortage has shown up in home prices, which have shot higher in recent months. Prices gained 10.4% in February from the year-ago period, marking the largest one-year bounce since 2006. Prices also rose 1.2% month-over-month in February, signaling that, while the sales rate has slowed, costs are still climbing. The loftier prices stand to price potential homebuyers out of the market and make housing less accessible overall.

Still, filling the hole in the housing market isn’t as simple as going out and building more. The pandemic’s fallout disrupted all kinds of supply chains, including those critical for home construction. A widespread lumber shortage is estimated to be adding about $24,000 to the price of new homes, according to the National Association of Home Builders.

A decades-long slowdown in construction activity also contributed to the supply strains. The financial crisis and its damage to the US housing market led contractors to curb some building activity to prop up demand. Those actions are now coming back to haunt the housing market, which is estimated to be short some 4 million units, The Wall Street Journal reported, citing Freddie Mac data.

“We should have almost four million more housing units if we had kept up with demand the last few years,” Sam Khater, chief economist at Freddie Mac, told The Journal. “This is what you get when you underbuild for 10 years.”

Data suggests contractors are up for addressing the issue. Apart from the Friday housing-starts report, the National Association of Home Builders’ sentiment gauge edged higher in a preliminary April reading. A component measuring expected traffic of potential buyers rose to its highest level since November, signaling contractors are expecting steady demand throughout the building boom.

Read the original article on Business Insider

Housing starts soar to 15-year high as builders sprint to fill market shortage

home house construction
Workers are shown building luxury single family homes in Carlsbad, California,

  • Housing starts surged 19.4% in March to their highest level since 2006, the Census Bureau said.
  • The rebound was fueled by a massive supply shortage and a return to work after harsh winter storms.
  • The supply-demand imbalance sent prices soaring during the pandemic and cut into home affordability.
  • See more stories on Insider’s business page.

Insider has been warning of a potential inventory crisis in the housing market since last summer. It’s just gotten worse since then, with a record low number of homes for sale.

Builders are racing to catch up.

New residential construction surged more than anticipated in March as builders rushed to address the massive supply-demand imbalance in the housing market.

Home starts leaped to a seasonally adjusted annual rate of 1.74 million units last month, the Census Bureau said Friday. That’s up 19.4% from the revised February reading. Economists surveyed by Bloomberg expected starts to rise to a rate of 1.61 million. The reading places housing starts at their highest level since 2006 and marks the largest month-over-month gain since 1990.

The strong rebound was partially driven by a return to work after harsh winter storms hampered construction in February. Permits for residential construction also gained in March, though at a more modest rate.

The upswing in home construction comes as the market sits mired in a historic supply shortage. Low mortgage rates spurred a buying spree throughout the pandemic, as did a mass exodus from cities to suburbs. The pace of home sales cooled somewhat in February, but inventory remains at a record-low 1.03 million, according to the National Association of Realtors. At the current rate of purchases, that supply will only last for two months.

The shortage has shown up in home prices, which have shot higher in recent months. Prices gained 10.4% in February from the year-ago period, marking the largest one-year bounce since 2006. Prices also rose 1.2% month-over-month in February, signaling that, while the sales rate has slowed, costs are still climbing. The loftier prices stand to price potential homebuyers out of the market and make housing less accessible overall.

Still, filling the hole in the housing market isn’t as simple as going out and building more. The pandemic’s fallout disrupted all kinds of supply chains, including those critical for home construction. A widespread lumber shortage is estimated to be adding about $24,000 to the price of new homes, according to the National Association of Home Builders.

A decades-long slowdown in construction activity also contributed to the supply strains. The financial crisis and its damage to the US housing market led contractors to curb some building activity to prop up demand. Those actions are now coming back to haunt the housing market, which is estimated to be short some 4 million units, The Wall Street Journal reported, citing Freddie Mac data.

“We should have almost four million more housing units if we had kept up with demand the last few years,” Sam Khater, chief economist at Freddie Mac, told The Journal. “This is what you get when you underbuild for 10 years.”

Data suggests contractors are up for addressing the issue. Apart from the Friday housing-starts report, the National Association of Home Builders’ sentiment gauge edged higher in a preliminary April reading. A component measuring expected traffic of potential buyers rose to its highest level since November, signaling contractors are expecting steady demand throughout the building boom.

Read the original article on Business Insider

US home prices soared at the fastest rate since 2006 in February

House for sale US
A house’s real estate for sale sign shows the home as being “Under Contract” in Washington, DC, November 19, 2020.

  • US home prices surged 10.4% year-over-year in February, the biggest such jump since 2006.
  • The market has been red hot during the pandemic, but affordability represents a new challenge.
  • Price growth will cool into 2022 as mortgage rates rise and price out more buyers, CoreLogic said.
  • See more stories on Insider’s business page.

Everyone knows it’s been hard to find an affordable house amid the pandemic, but as the data comes in, it’s becoming clearer just how hard.

The answer: Extremely.

US home prices continued to rip higher in February as supply constraints across the country and outsize demand boosted competition.

Selling prices increased 10.4% in February from year-ago levels, marking the largest year-over-year gain since 2006, according to CoreLogic data published Tuesday. Prices rose 1.2% from levels seen in January 2021. Idaho and Montana saw the biggest jumps, with year-over-year gains of 22.6% and 19.5%, respectively, according to the financial analytics firm CoreLogic.

And the outlet sees another year of more expensive housing ahead, projecting prices will rise another 3.2% by February 2022. The end of the pandemic can ease constraints on supply, CoreLogic said. On the demand side, it expects the lack of affordable housing to cut into some potential purchases.

“The run-up in home prices is good news for current homeowners but sobering for prospective buyers,” Frank Nothaft, chief economist at CoreLogic, said. “Those looking to buy need to save for a down payment, closing costs, and cash reserves, all of which are much higher as home prices go up.”

The housing market was among the few hotbeds of economic activity throughout the coronavirus pandemic. The Federal Reserve’s emergency rate cuts in March 2020 pulled mortgage rates to numerous record lows throughout last year, leading many to take advantage of more appealing borrowing costs. Prolonged work-from-home periods spurred moves from apartment-dense cities into suburbs, which also lifted housing-market demand.

The buying spree quickly snapped up most of the market’s available supply, but that streak recently showed signs of slowing. For one, expectations for a strong economic recovery saw investors dump Treasurys in recent weeks, lifting yields on government debt and in turn leading mortgage rates to swing higher. Rates now sit at their highest levels since June after rising for seven weeks straight.

The turnaround in mortgage rates and soaring prices seemed to finally bite into the housing market’s rally in February. Existing home sales fell 6.6% that month to the slowest rate since August, according to the National Association of Realtors. At the same time, supply remained a measly 1.03 million units, a level that would only satisfy two months of sales at the February rate. Should prices trend even higher, the red-hot market could cool even faster.

“Homebuyers are experiencing the most competitive housing market we’ve seen since the Great Recession,” CoreLogic CEO Frank Martell said. “As affordability challenges persist, we may see more potential homebuyers priced out of the market and a possible slowing of price growth on the horizon.”

Read the original article on Business Insider

A $400,000 house got 122 offers in 2 days, highlighting the desperate frenzy buyers are facing amid skyrocketing real-estate prices and a dearth of homes for sale

Suburban neighborhood aerial view
  • A central California home for sale received 122 offers in a single weekend.
  • The selling price was “in the mid-$400,000 range,” according to Fox affiliate KTXL.
  • It’s a symptom of a soaring real estate market where inventory is low and demand is high.
  • See more stories on Insider’s business page.

A California home received 122 offers in a single weekend amid a skyrocketing US real estate market.

The 1,400-square-foot home – located in Citrus Heights, California, a suburb of Sacramento – was listed at $399,900. It spans 1,400 square feet and has three bedrooms, two bathrooms, and a swimming pool, according to a report from KTXL, the local Fox affiliate.

The house received 122 offers in two days, including one above $500,000, and has since been sold for an undisclosed amount – KTXL reports the selling price was “in the mid-$400,000 range.”

The home’s current owners predicted they would receive eight or 10 offers for their home. They’re planning to move to Idaho, KTXL reports.

Read more: It’s actually a horrible time to buy a house

The unprecedented number of offers is a symptom of a pandemic-related surge in home sales. According to a September report from the National Association of Realtors, existing home sales reached a 14-year high last August. Similarly, housing inventory hit a record low in September, and dipped even lower one month later to 2.5 months of supply.

Those who already own homes are opting not to sell, and new home construction has dipped over the years. But according to Bloomberg, new home construction rose to a new high last August, its highest since 2006.

Given the low inventory, home prices are also on the rise. Prices soared through the end of 2020, jumping the most in seven years by December, according to the S&P Case-Shiller US home-price index. Phoenix, Seattle, and San Diego saw price increases among the 19 cities surveyed.

A rush to buy up homes may lead to regret for new homeowners

The real estate frenzy is driven by a combination of factors. Mortgage rates hit record lows a dozen times in 2020 alone, and the pandemic induced a desire for outdoor space or a more comfortable work-from-home arrangement.

According to research from investment management firm Cowen and Company published late last year, there’s been a noticeable migration among people ages 25 to 34 from urban areas to suburban ones. Among the 2,700 people Cowen surveyed, 48% of millennials reported living in the suburbs compared with 44% in 2019.

Those who reported living in cities fell to 35%, down from 38% last year.

“This suburbanization trend has been slowly occurring since 2017, and we expect it to accelerate with the COVID-19 disruption,” Cowen analyst John Kernan wrote. “These results are also corroborated by a shift in home ownership.”

The rush to snap up homes during the pandemic has already led to regrets for many buyers. The Wall Street Journal’s Candace Taylor reported last month that buyers were making hasty purchases, skipping due diligence, and waiving inspections. One family discovered a wasp infestation after closing on the house, while another learning they’d have to spend $150,000 on siding to alleviate a woodpecker issue.

A LendEDU survey from September found that roughly 55% of Americans who bought houses during the pandemic reported buyer’s remorse – 30% of those people said they should have waiting to buy a home for financial reasons.

Scott Trench, the CEO of the real-estate-investing resource BiggerPockets, recently told Insider’s Taylor Borden that it may not make sense to try to buy a house right now.

“Frantically trying to buy ‘something’ is a great way to make a bad purchase,” he said.

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The US housing-inventory crisis is starting to bite existing home sales, which fell the most since August last month

FILE PHOTO: Homes are seen for sale in the northwest area of Portland, Oregon March 20, 2014.  REUTERS/Steve Dipaola
Homes are seen for sale in the northwest area of Portland.

  • Existing home sales fell 6.6% in February to the slowest rate since August, according to NAR data.
  • Inventory held at a record-low 1.03 million, underscoring the market’s supply-demand imbalance.
  • The median selling price crept higher to $313,000 to tie the record high seen in October.
  • See more stories on Insider’s business page.

Sales of previously owned homes in the US declined more than expected in February as the housing market’s supply shortage further curbed the recent buying spree.

Existing home sales fell 6.6% last month to a seasonally adjusted annual rate of 6.22 million, according to data published by the National Association of Realtors. The reading is the first decline since November and drags the pace of sales to its lowest since August. Still, sales are up 9.1% from the year-ago level.

Economists surveyed by Bloomberg had expected a more modest drop to a 6.49 million sales rate.

The median existing-home price crept higher to $313,000, marking 108 consecutive months of year-over-year gains. The new level ties October’s record high and sits 15.8% above the year-ago level.

Home inventory remained at a record-low 1.03 million units at the end of last month. Unsold units now count for two months of sales at their current rate, up slightly from January’s 1.9 month supply.

Supply was down 29.5% year-over-year at the end of February, underscoring the shortage that’s contributed to higher prices and a now-slowing pace of sales. Home purchases first boomed at the start of the pandemic as record-low interest rates pulled borrowing costs lower. Mortgage rates set several record lows in 2020 and further boosted buying activity.

Supply strains have since lifted prices even higher, and mortgage rates are now reversing their months-long decline. Lumber shortages have also pressured costs, with the National Association of Home Builders saying last month that rising material costs are adding $24,000 to the price of new homes.

These obstacles will likely curb the market’s rally as the economy reopens, Nancy Vanden Houten, lead US economist at Oxford Economics, said.

“We look for the pace of existing-home sales to drift lower over the course of the year as headwinds from a lack of supply and eroding affordability are partially offset by the tailwinds of still-strong demand, particularly from younger households and a solid recovery,” she added.

The National Association of Realtors is more bullish toward the strained market. While affordability is weakening, strong savings and a boost from Democrats’ latest relief package should keep demand elevated through 2021, Lawrence Yun, chief economist at NAR, said.

“Various stimulus packages are expected and they will indeed help, but an increase in inventory is the best way to address surging home costs,” he added.

Contractors are struggling to rise to the occasion. Building starts for new privately owned residences fell 10.3% to a seasonally adjusted annual rate of 1.42 million in February, according to the Census Bureau. That’s the lowest level since August and marks a second straight month of decline.

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