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3 Trends Driving Hyperactivity in the Real Estate Market

December 11, 2020

Ali Wolf

Ali Wolf
Lawrence Yun

Lawrence Yun

Despite the economic uncertainties continuing to surround the pandemic, one fact has become crystal clear: Americans are ready to buy a new home. Low inventory, bidding wars, and record-low mortgage rates are giving consumers a new sense of FOMO—fear of missing out—and spawning a hot housing market, Ali Wolf, chief economist for real estate analytics company Zonda, said Thursday during the National Association of REALTORS®’ virtual Real Estate Forecast Summit. “To our surprise, the housing market has not only recovered but roared past pre-pandemic levels,” added NAR  Chief Economist Lawrence Yun, who presented a consensus real estate forecast based on a survey of 30 leading economists.

Danielle Hale

Danielle Hale
John Burns

John Burns

For some Americans, soaring home equity and gains in the stock market are padding the financial impact of a pandemic-fueled recession. Pending home sales are up 20% from a year ago, buyer traffic is up 32%, and mortgage applications are up 27%—all indicators that this winter may be the best ever for the housing market, Yun said. Mortgage rates also remain at record lows. The 30-year fixed-rate mortgage averaged 2.71% for the week ending Dec. 10, according to Freddie Mac.

NAR Consensus Forecast chart

Sellers, Builders May Ease Inventory Crunch

Inventory remains constrained as buyer demand surges. Potential sellers who are hesitant to list their home during a pandemic may not be aware of the housing market’s strength, said Danielle Hale, chief economist for realtor.com®. Sellers are often buyers, too, and they may not want to face the challenge of finding a home amid low inventory. These realities have limited the number of homes on the market during the pandemic, panelists said.

Why can’t builders construct more housing to meet demand? Labor shortages and escalating prices for building materials have held many builders back, with 80% saying they had to raise their new-home prices last month due to higher expenses, according to Zonda research. Further, most new-home construction in recent years has occurred near expensive urban cores.

Now that more buyers want to live farther from the city, builders are snatching up land in far suburbs and exurbs, said John Burns, CEO of John Burns Real Estate Consulting. Builder sentiment indexes are running at record highs, Burns said. “Builders have never been more optimistic, so we’ll see more construction—but it’s still going to take a while.”

Suburbs Grow, But Cities Aren’t Dead

While the suburbs are in a growth phase, not all buyers are giving up on city living. “The popularity of the suburbs is real, but [the housing market] is not reflecting a full-fledged urban flight either,” Hale said. “Real estate is booming everywhere. The suburbs have bounced back relatively quicker than the urban areas nationwide.”

The suburbs were growing before the pandemic as millennials started migrating away from cities to form households. That trend has only accelerated, Wolf said. “The work-from-home environment has really fueled the ability for more people to migrate,” she said. “Home has become a focal point” as people hunker down during the pandemic.

Demand from investors also is surging, panelists said. Build-for-rent subdivisions are popping up as investors see a growing appetite from renters for single-family homes. Investor groups also are crowdsourcing funds to buy properties together, and home flippers are reemerging to turn around fixer-uppers for a quick profit, Burns said.

Assistance Programs Boost Affordability

Low mortgage rates can help buyers offset higher home prices, but not when prices are soaring into double-digit annual increases like they are now. First-time buyers are particularly in danger of being priced out of the market. “Affordability is going to be a key challenge in 2021 for first-time buyers,” Hale said.

Wolf added that education on down payment assistance programs will help would-be buyers find a purchase path amid higher prices. One positive sign: 60% of millennials are saving more money this year than last year despite the economic downturn, according to Zonda research. Millennials also say part of their increased savings will go toward a down payment.