2021 Spring Market Starting Off Hot and Highly CompetitiveBy Gay Cororaton, Senior Economist, Director of Housing and Commercial Research, National Association of REALTORS® The 2021 spring market is starting off with the lowest inventory of homes on the market in nearly 40 years, while job growth is ramping up amid an aggressive fiscal policy and continued low mortgage rates. As a result, homebuyers are likely to face the most competitive spring market in years. Here are the indicators pointing to a hot spring market in a broad swath of metro areas.
1. There's a shortage of 2.4 million homes for sale. The inventory of existing and new single-family homes for sale is the lowest since 1982. (The National Association of REALTORS® (NAR) started tracking both single-family and condominium existing home sales in 1999 but started collecting data on single-family homes in 1982.) By the end of February 2021, the inventory of homes for sale stood at a historic low of 1.07 million (1.03 million existing and 42,000 new single-family homes). That’s equivalent to just 1.8 months of inventory, given the average monthly U.S. transactions 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). Traditionally, six months’ inventory of the average monthly demand keeps home prices from overheating. That means, nationally, U.S. inventory is almost 70% off a balanced market of 3.49 million homes for sale. There’s a dire lack of inventory across all metropolitan areas. Realtor.com® reported that only four out of 381 metro areas, or just 1%, had more active listings in March 2021 compared to one year ago. Those markets are 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. Click here for more data on active listings in metro areas. 2. Demand (pending listings) is outstripping supply (active listings) in 70% of metro areas. A leading indicator of home sales and a good indicator of the demand for homes is pending listings. Most pending listings will turn into sales. Based on NAR’s REALTORS® Confidence Index Survey, only 6% of contracts are terminated (latest data as of February 2021). In 70% of the 381 metro areas tracked by realtor.com®, the number of pending listings on any given day in March was higher than the number of active listings. The ratio of pending sales to active listings is an indicator of how hot the market is. The five 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). Click here for more data on the pending-sales-to-active-listings ratio. 3. Listing prices are rising at double-digit rates in 64% of metro areas. Prices are the best indicator of demand and supply fundamentals. In March, 64% of metro areas were posting double-digit year-over-year price appreciation, based on realtor.com® listings. The strongest price appreciation is occurring in 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%). Idaho and Utah are the only states where non-farm payroll employment was up in March 2021 compared to one year ago. To find your metro area, click here. 4. Expectation of higher mortgage rates in the future will drive demand now. Mortgage rates are still trending at historic lows, with the 30-year fixed rate mortgage falling to 3.13% in the week of April 8, still a tad lower than the 3.33% rate posted one year ago. NAR’s Chief Economist Lawrence Yun expects mortgage rates to hover below 3.5% in 2021. After that, mortgage rates are likely to go up, not down. Inflation is 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 in the future will be more likely to get into the homebuying market now, pushing up demand. 5. Sustained employment growth will increase home demand. Employment continues to recover from the pandemic, under highly accommodating monetary policy and a strong dose of fiscal expansion (hovering at $5 trillion with the passage of the $1.9 trillion CARES Act of March 2020, $900 billion Consolidated Appropriations Act of December 2020, and the $1.9 trillion American Rescue Plan of March 2021). Since May 2020, the economy has created 13.9 million non-farm payroll jobs, with the number of lost jobs now at just 8.5 million. In March alone, the economy created 916,000 jobs. 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 2020 (although only the finance and insurance industry and federal government have higher non-farm employment in March 2021 compared to peak employment in February 2020). |