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Inventory has hit record lows. Days on the market are now measured in hours. Home prices are steadily rising, and more existing homes were sold in 2020 than in any year since 2006. America’s housing market is officially over-heating. Real estate is always a topic of conversation amongst us, as it’s our passion & life’s work…but now it’s a standard conversation that spans ages and communities. This seemingly spiraling phenomenon is actually not so complex, and we hope to adequately explain a bit of what’s currently going on out there.
First and foremost, let’s talk housing supply. A multi-generational housing market, including tens of millions of Millennials who have recently come of home-buying age, is aiding in creating a nationwide housing supply shortage. This increased competition with limited supply is driving up prices at the affordable end of the spectrum for many Americans. This issue has been deepening for years, however. In fact, since the end of the Great Recession, home building hasn’t kept pace with population growth, and we are feeling the effects now. Additionally, with record-low mortgage interest rates, wealthy buyers continue to consume second and third homes as investments, resulting in millions of homes that won’t hit the market any time soon, because it makes more sense for owners to hold than sell as long as prices continue to rise.
Simply put, this current boom is driven by intense demand paired with record-low mortgage rates. Factors from above, as well as our improving economy and an increase in working from home (driven by the pandemic and a desire for more space, especially in suburban areas) have fueled a rapid increase in housing demand. The hardest part about buying a home for most people used to be getting approved for a mortgage. Now, with so many online avenues in the real estate industry, especially digital mortgage approvals, the speed in which homes are marketed and sold has exponentially outpaced the supply.
The lack of housing supply has been compounded by the disruptions in the labor market and expensive home-building materials that are driving up the cost of new construction, making it difficult to find homes to purchase. These factors may not seem directly related, but definitely play a huge role in the hot market we are currently seeing. Fortunately, new construction of single-family homes is expected to grow this year, and while that will inevitably result in a higher median price due to increase in lumber prices, the lack of existing homes for sale means new construction is the only option!
While the overall tone of the housing market may feel very doom and gloom, there are positives to be found. Overall economic activity is ramping up in all industries, jobs are recovering, and mortgage rates are still trending at historic lows. These low mortgage rates won’t last forever, however, and our best advice to prospective buyers is to get pre-approved so that you can capitalize on it now. Paying a mortgage on a home can serve as a forced savings account, and help you build equity over time (check out our previous blog on this topic here). Don’t forget the assistance of a knowledgable real estate professional to write a great purchase offer to help you beat out the competition.
Whether you are looking to buy or sell, Key to the Rockies Real Estate is ready to answer questions and help you every step of the way. Reach out today if you are considering a change to your current housing situation.