The Freund Group at Compass Real Estate is delighted to be bringing you today’s market update. Our goal is to keep you updated on what is currently happening in today’s housing market.
According to the national association of realtors, inventory was at an all-time low of 1.9 months in December of 2020. That is down significantly from December 2019 when there were 3.6 months of inventory available. Not only were existing home sales up from 2019 to 5.64 million, which is an increase of 5.6% from 2019. New listings were down significantly throughout 2020 and dropped more than 30% at the end of the year. That is a difference of 300k homes that we do not have on the market. 6 months of inventory is considered a balanced market and during the buyers’ market around 2011, there were 9.5 months of inventory on the market.
So, what does this mean? This means that the amount of homes for sale is considerably lower than in previous years.
With record prices, many buyers may have the concern right now whether housing is affordable or not. Interest rates hit a new low record 16 times in 2020. Homeownership is more affordable now than it has been for almost all of the past 40 years. The affordability index is currently at 168.2. The only time it has been more affordable was during the years after the housing market collapse when there were so many distressed properties on the market and home prices were down significantly.
So, the affordability index is 168.2 what does that mean? The Housing Affordability Index (seen to the right) shows that the higher the index number, the more affordable it is to buy a home. The Housing Affordability Index takes things such as interest rates and rising wages into account to help compute the index.
Interest rates will inevitably rise at some point even though rates are predicted to remain very attractive in 2021. Rising interest rates are often the sign of a strong economy and that also increases home buyer demand. But of course, it also increases the cost of financing a home. In fact, on a 30-year loan on a $300k mortgage that is a difference of $189.21 a month which translates into over $68k difference over the life of the 30-year loan if rates increased from 2.7% to 3.4%.
So, what does this mean? Interest rates are going to fluctuate. Everyone wants a good low interest rate, but everyone also wants a strong economy to fuel the real estate market. Unfortunately, a strong economy will increase the interest rate. This means you should keep an eye on the market’s interest rates if you are thinking of selling so you can take advantage of the opportunity.
Many homeowners that would like to sell are concerned if they will be able to find their next home if they sell their current home. There are multiple solutions, A few of which are, selling the current property with a leaseback, selling to investors, or utilizing a bridge loan which we have available through Compass with no out-of-pocket cost. We also have solutions that go beyond the multiple listing service to help find homes for the sellers.
What does this mean? There is always going to be seller concern regardless. In today’s market sellers want to feel confident that if they sell their home, they will be able to find a new one. There are several options to be explored. One of those options is a bridge loan where essentially, we help get you from your current home to a home that better suits your needs without you incurring any cost out of pocket.
One of the things driving the market is the number of people working from home currently. The pandemic forced many of us, in fact, 21% to work from home. In 2019 only 6% of people worked from home. As the situation improves and more people receive the vaccine that number is predicted to drop in the next two years, but will still be twice the number than before the pandemic. These people want and need homes that are more suitable for working from home and give the ability to live in different areas.
What does this mean? This pandemic has had a tremendous effect on the decision to buy and sell this past year. It is projected that as the vaccines are distributed more people will become comfortable and confident in their decision to buy and sell.
So, we agree with the experts in thinking that 2021 is going to be a very busy year for real estate. As the year goes on, if people become more comfortable, we should see more homes come on the market and the available inventory increase.
As always, we are your friends in real estate, here for all your real estate needs.
The Freund Group with Compass Real Estate.