Will the housing market cool down in 2021?

It’s been a tough few months for anyone looking for deals – especially for the MLS. People just didn’t sell their houses. It makes sense that the inventory is low. Despite all the uncertainty about the economy, people are using their homes more than ever. And who wants strangers running around their lockdown palace?

Will more properties be listed soon?

Inventories bottomed nationwide in October, according to Federal Reserve data, reaching levels we have not seen since 2004. This has resulted in a huge seller market in the past few months. An agent friend of mine recently told me that an apartment in Denver bid for a client was $ 76,000 too much. Whoa.

According to Zillow, the median home value (basically the average of all zestimates) has risen by 9.9% nationwide this year. That’s crazy! No, estimates are not always accurate for a particular property, but when this data is aggregated, it is usually directional.

From February 2021, things can change. The US home supply index soared to 4.8 that month, the highest level we saw in May 2020. As a reference, the average for the four years before the COVID-19 pandemic was 5.6 – we’ll be back!

According to a new study by Clever Real Estate, around 43% of homeowners surveyed in March said the pandemic was delayed by the time they tried to bring their home to market. No wonder inventories were so shockingly low.

But the good news: people seem eager to get their properties listed anytime soon. In fact, 45% of the 43% who delayed listing said they plan to have their property listed by June. Another 13% plan to add their home to the list between July and August, and 13% more before the end of October.

If all the intentions of this survey work, we should see a huge surge in inventories in the months ahead.

What if the inventory increases?

Supply and demand tell us that prices will generally decrease as supply – or the housing stock – increases, provided that demand remains constant. Put simply, if there are more homes for the same number of buyers, buyers will no longer have to compete as hard for a limited supply of property as they do today.

I suspect that if this glut of supply comes to fruition, list prices won’t fall, but we will see a drop in properties well in excess of demand.

Unless mortgage rates keep rising. As I wrote recently on the BiggerPockets blog, recent inflation news could potentially drive mortgage rates higher in the coming months. But even if interest rates rise, they are likely to remain extremely low – at least from a historical perspective. But the convergence of these two factors could really slow down the craziness we are witnessing right now. Less competition from buyers and more expensive mortgages seem like a recipe for a return to more normal growth rates.

Good news from the Bureau of Labor Statistics

Some other positive news about the housing market accompanied recent news from the Bureau of Labor Statistics.

Housing affordability remains very high because, historically, mortgage rates are still so low.

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Second, foreclosures remain low. It is difficult to say whether the number of foreclosures will be influenced by government policies or whether they will increase if and when government support ends.

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Overall, however, the data point to a more sustainable and stable housing market in the summer of 2021.

I’m excited to see what everyone thinks of a cooling housing market. I personally think it would be a good thing. This increase in value is unsustainable, and I would like more stable growth – an environment that allows for more confident investing. What are your thoughts?

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