Is the Housing Boom Over?

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Market Trends

  Pending sales of existing homes decline almost 2%.

Analysts say this could signal that the pandemic housing boom is coming to an end.

New data released by the National Association of Realtors found that pending sales from May to June not only dropped, but sales were also down by 1.9% compared to June 2020.

In May 2021, there was a 17% increase in home prices compared to May 2020, which was the most significant yearly gain on record. The price increase likely supports the theory that the performance in the housing market is driven by high demand with many buyers moving from apartments in urban areas to suburban homes.

The sale of newly built homes fell in June.

Sales of newly built homes in June fell 6.6% below the revised May rate. This represents a fall to an annualized rate of 676,000 below May’s rate of 724,000 and a whopping 19.4% below the June 2020 estimate of 839,000 according to the U.S. Census Bureau.

Low inventory led to the enormous price increase, but that may be shifting as well because there was a 5.5% increase in the number of newly listed homes in June compared to last year. Lawrence Yun, Realtors’ chief economist, released a statement saying that pending sales have fluctuated since January, showing the market might be at a turning point. He went on to say that buyers still want to own a home, but the record-high prices are causing hesitation.

George Ratiu, senior economist at Realtor.com, said that while prices are at record highs and mortgage rates are still near record lows, sellers still see conditions as favorable.

Mortgage rates ticked higher in early June.

Another possible factor leading to the decrease in home sales could be the uptick in mortgage rates buyers felt in June. Mortgage rates increased by about a quarter of a percentage point in June, which could have been the tipping point for buyers already weary of high sticker tags.

Rates have since come down, but Yun predicts that rates will go up more steadily toward the end of the year. That could lead to declines in demand and lower price appreciation.

Some analysts see a cooling of the market.

Some analysts see a cooling of the market in part due to home-builders faced with increased material costs and supply chain disruptions, affecting their ability to finish homes. 

We’ll get a better picture of whether the market is saturated, over the next couple of months. Prices may bottom out or they could go back up. If the market is saturated, that means everyone who needs a home has purchased one, and prices could start to decline fairly quickly.

However, if demand is purposely restrained due to drained buyers who have thrown their hands up to historically inflated prices, the housing market could simply be in a lull ready to rise again once prices come off to a level of interest for a demand that still exists.

 Regionally, pending sales fell.

Regionally, pending sales in the south fell 3% monthly and 4.7% from June of last year. Sales in the west went down 3.8% monthly, and annually, 2.6%. In the Midwest, sales went up 0.6% monthly but were down 2.4% annually.

BOTTOM LINE

How the market moves forward is going to vary depending on inventory, how the pandemic continues to play out across the country, and what happens with interest rates, inflation and the economy as we move toward the end of the year.

Jean Scott Realty

Mobile:  919-675-5366

E-Mail:  Jean.Scott@kw.com

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