May 14, 2021

Demand stays strong in spite of rising prices

According to the National Association of Realtors (NAR) the median home-sale price increased 20% year over year in April to an all-time high of to $347,500. Purchased homes spent less than 20 days on the market, the shortest time since 2012.

Despite fewer than half as many listings compared to a year ago, there was a significant enough increase in April sellers to slow the declining inventory, which will likely slow the pace of price growth eventually.

Still, analysts expect to see more highs in the median home listing price in the months ahead. NAR’s Pending Home Sales Index, which records contract signings of existing homes and typically leads closings by one to two months, rose 1.9% to 111.3 in April. Sales rose in every region except the Midwest.

Recent blows to the economy - a soft April jobs report and a 4.2% jump in consumer prices - did little to move interest rates.

Some analysts projected dire consequences when the Department of Labor reported a lukewarm 266,000 jobs added for the month. March’s hot numbers were downgraded, too. But the the markets' reaction to the big miss was mild.

With easy lending conditions still in place, investors appear to believe it’s a short-term phenomenon. Though still running roughly 2-3 times above the level seen before the pandemic, new unemployment claims have dropped significantly over the last six months. A stabilizing job picture should encourage more homebuying, despite inventory shortfalls.

Consumers seem largely unaffected as well. Government stimulus appears to be working. Despite flat retail sales in April, the Conference Board Consumer Confidence Index surged 12.7 points to 121.7 for the month, the highest level since February 2020. Real disposable income jumped 23 % in March, the largest monthly increase since 1959. After declining in February, the savings rate nearly doubled to 27.6%.

In early May, the Federal Reserve termed the overall financial system “sound,” with household finances in shape, and corporations supported by an improving economy and low interest rates.

Those rates are also good news for home shoppers, the majority of whom will use a mortgage to purchase a home, and will receive more manageable monthly payments.

The price increases have the largest effect on first-time buyers and those with moderate incomes. According to Fannie Mae’s Home Price Sentiment Index, consumers earning between $50,000 and $100,000 are particularly pessimistic, with the shortage of homes for sale most acute on the market’s lower end.

Lower-priced homes are in big demand and short supply, driving up prices faster compared to their more expensive counterparts. Starter home saw prices jump 15.1% during the past year, compared with the overall national increase of 11.3%

But despite these negative feelings for starter home buyers, the total HPSI is up 16% year-over-year. Bolstered by the wonderful opportunities for sellers, optimism is near pre-pandemic peaks.

Competition for housing does not appear to be letting up at all. Real estate records continued to fall during the four-week period ended May 2. The average listing went under contract in 19 days, down from 35 days one year ago. About 45% of homes are under contract in less than a week. In another record 48% of homes sold for more than their list price, up 20 points from a year earlier.

As an option for some, Fannie Mae and Freddie Mac (the GSEs) have provided details for their streamlined refinance programs for current homeowners, available this summer.

The programs are designed to encourage eligible low-income borrowers to refinance and lower their interest rates and monthly mortgage payments.