8 Stunning Statistics That Describe Today’s Extreme Housing Market

At the end of 2020, Mortgage Bankers Association (MBA) Chief Economist Mike Fratantoni predicted that 2021 would set home-buying records. Now, in the thick of spring home-buying season, his forecast appears to be coming true.

A new report from Redfin covering the four-week period ending May 2 details just how many records 2021’s market has already broken. Because the pandemic shut down the housing market this time last year, year-over-year data is sometimes not helpful. That’s why Redfin broke down its data into two categories: metrics that make sense to compare to 2020 and metrics that are better viewed in comparison to 2019.

As you’ve likely read across mortgage news sources, certain factors are creating a red-hot housing market this spring. Those factors include record-low inventory, strong buyer demand, and sky-high lumber prices.

“As states lift their pandemic restrictions, we will likely see more shortages and price increases on everything from gasoline to hotel stays and food,” said Redfin Chief Economist Daryl Fairweather. “These price increases will likely be short-lived, but could cut into homebuyers’ budgets and ease competition enough for the housing market to become more balanced. A more balanced market could encourage more move-up homeowners to finally sell, because they won’t be so fearful about being able to find and compete for a home to buy.”

To get a better understanding of today’s extreme market, let’s take a look at some of its staggering metrics and their implications.

Tight inventory

Statistics:

—Homes were on the market a record low of 19 days, down 16 days from the same period in 2020.

A record high 58% of homes under contract had an accepted offer within the first two weeks on the market.

A record high 45% of homes under contract had an accepted offer within one week of hitting the market.

—New listings were down 8% compared to the same period in 2019.

—Active listings (the number of homes listed for sale at any point during the period) fell 48% from the same period in 2019.

Implications:

Lack of inventory is reaching a crisis point nationally. February 2021 saw 1.03 million homes for sale, representing the lowest number on record.

It’s obvious to most in the industry that an absence of homes for sale means problems for buyers across the country. What’s less obvious is how disproportionately inventory issues affect different demographics. For instance, lack of inventory isn’t an issue for the luxury segment. The number of luxury homes for sale fell just 5.1% year-over-year in Q1 2021. Affordable homes for sale, meanwhile, fell 14.9%, while mid-priced homes plummeted 19.8%.

“[Selling] isn’t as big of an issue for luxury homeowners since there’s a relative abundance of high-end homes to choose from,” said Redfin Chief Economist Daryl Fairweather.

Rather, first-time home buyers and those seeking low to mid-priced homes are being edged out of the market in the highest numbers.

Rising home prices

Statistics:

—The median home-sale price hit $348,500, representing a record high 21% year-over-year growth rate. Asking prices reached an all-time high of $360,975.

A record high 48% of homes sold for more than their list price, up 20 percentage points from the same period a year ago.

—The average home sold for a record high 1.4% more than its asking price.

Implications:

Here again, we see housing market issues disproportionately impacting underserved demographics, including first-time and low-income buyers. While some of these buyers were lucky enough to purchase a house during 2020’s low-rate environment, conditions have changed dramatically.

“After a surprising gain for housing affordability in 2020 that was driven by historically low interest rates, housing emerged as a bright spot for the overall economy,” said National Association of Home Builders (NAHB) Chairman Chuck Fowke. “However, the first quarter reading of the HOI is an indication that housing affordability will further decline this year as higher lumber and other material costs and longer construction times will act as headwinds for the market.” 

Beyond tight inventory, lumber prices continue to drive up home prices dramatically. Lumber prices have tripled over the past year. This is an effect of lumber mills shutting down during the pandemic. Once low interest rates caused a home-buying boom, lumber production couldn’t catch up, causing supply issues and boosting prices.

“While economic growth in 2021 will be at the highest growth rate since 1984 and the labor market will continue to improve, higher home prices and an expected rise in interest rates will price some prospective home buyers from the market,” said NAHB Chief Economist Robert Dietz. “More housing supply is needed to bring home price growth back to sustainable levels.”

To add to these obstacles, new research from real estate tech provider OJO Labs suggests that buyers with lower credit scores are more likely to lack information on finances and the home-buying process. For instance, only 8% of home buyers with poor credit scores said they were working with an agent or lender. While mortgage lenders are loosening credit standards, the odds remain stacked against borrowers with lower incomes and credit scores.

How can lenders help?

Today’s home-buying market is frenetic. In many cases, only wealthy buyers looking to purchase a vacation home are able to land the deal.

While lenders can’t do much to create more inventory or control home prices, there are a few ways they can support less privileged home buyers.

These include:

—Providing education that supports financial literacy and understanding of the home-buying process to those in need

—Ensuring underserved demographics understand the down payment assistance programs available to them

—Employing a team of loan officers that mirror diverse demographics in their community

—Using consistent outreach efforts to reach that community

—Setting up prospective homeowners for long-term success through ongoing support and outreach

There’s no silver bullet to solve the issues of today’s market. Still, community lenders are uniquely positioned to connect with and help today’s most vulnerable borrowers.

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