Home sales in the United States are increasing. When does the music stop?
As housing omens fade, beware of trending Google search.
During the first week of April, US research interest in the phrase “when is the housing market going to collapse” jumped 2,450% from the previous month, and is now most popular than ever since 2004, according to Google. The search terms “should I buy a house” and “sell my house” have also reached record interest.
Market watchers are right to be suspicious. The median selling price of an existing home in the United States was $ 313,000 in February, up almost 16% from the previous year, while an annual increase of 3-5% is seen as healthy, according to a report by the National Association of Realtors, a trade group.
“I think that’s what’s on everyone’s mind,” said Jonathan J. Miller, a New York City appraiser who analyzes markets nationally. “How long is this going to last?”
The answer will largely depend on where you live and how the pandemic continues to rearrange buyers’ priorities, but it will depend on two trends: rising mortgage rates and incredibly tight inventories in certain markets. which will likely keep demand strong until the remainder of 2021, even as price growth moderates, several analysts have said.
What awaits the end of this frenzied period is unlikely to be like the 2008 housing bubble, which caused a prolonged crash when it finally burst, they said. Today’s supercharged market has been caused by pandemic forces that have challenged other assumptions in the market. Even though the pendulum has shifted towards increased demand in suburban markets, cities too are booming.
Nationally, the housing stock was at an all-time high of 1.03 million units at the end of February, down 29.5% from the previous year, a record low, according to the National Association of Realtors.
As a result, homes sold in 20 days on average, a record speed, while 60 days is typical, said Lawrence Yun, the group’s chief economist.
“It feels like a bubble,” Yun said, recalling the lead-up to the subprime mortgage crisis that caused prices to crash after 2008. “But the fundamentals are different.”
Unlike the last major housing crisis, in which selling prices fell and many buyers got stuck with risky variable rate financing, today the 30-year average fixed rate mortgage remains. near its all-time low, lenders are relying on tighter underwriting requirements, and homeowners have more liquidity.
“We don’t have the reckless loans that we had before,” Miller said, and so even if market conditions turn frothy, some may find that they have paid too much for their property, but the flow and the ebb will be more in line with regular business cycles.
In Q4 2021, Yun predicts US home sales volume to fall 10% from same period a year earlier, as mortgage rates climb closer to 3.5% , up from around 2.7% at the start of 2021.
He also expects house prices to continue rising in the near term, due to more than a decade of slow housing construction hampered by restrictive zoning and high labor costs.
Yet the pandemic has affected markets in different ways. In New York City, where commercial real estate has been battered and homebuyers have moved to surrounding suburbs in search of affordability and more space, the sales market plummeted at the start of the pandemic but appears to have crossed the course.
“The rate at which homes are selling nationwide is not sustainable, but in New York City, the rise is only just beginning,” said Nancy Wu, economist for StreetEasy, an ad website.
In the week ending April 11, there were 783 new contracts signed citywide, the highest since the company began tracking pending weekly sales. in 2019, when the peak was 491 contracts, she said.
Unlike much of the country, New York City had a glut of luxury inventory before the pandemic, and prices had fallen since about 2017. From 2018 to late 2019, Manhattan saw selling prices drop about 15%. said Miller. . Overall, prices have fallen another 5-7% since the arrival of Covid, reaching a median of $ 1.075 million in the last quarter, and sellers are finally getting more realistic, he said. (One-bedroom apartments, the largest share of apartments sold, closed for a median value of $ 760,000.)
The price cuts have been a boon to a wider range of people. First-time buyers accounted for 41.9% of sales in Manhattan last quarter, the highest share in at least seven years, Miller said. And the share of all-cash buyers fell to 39.3%, a seven-year low, which may reflect both favorable interest rates and an abandonment of investment buyers.
Even the city’s luxury stock, which has seen some of the biggest price drops, is on the rise, said Donna Olshan, president of Olshan Realty, which tracks the market to $ 4 million and above. As of April 18, the city has recorded 11 straight weeks with 30 or more contracts signed in this tier, the longest streak of its kind since at least 2006.
“This has the potential to last for quite some time, as the results are only based on half a tank of gas,” Ms. Olshan said, referring to the fact that most of these signatures came from national and local buyers, as international. buyers are mostly left on the sidelines with travel restrictions.
There is already a change of mood in the city, as vaccinations progress and buyers anticipate the benefits of the federal stimulus package, said Mark Chin, agent and co-head of training at Keller Williams in New York.
“People who signed contracts even two months ago are absolutely delighted they did, because the bottom has already passed,” he said.
The New York revival also challenges one of the earliest assumptions during the pandemic – that suburbs would benefit at the expense of major cities, where shoppers, detached from office commutes, might choose to live further away from work.
Instead, a new analysis of the Postal Service’s address change requests shows that migration patterns since Covid-19 have not changed as much as some had predicted. New York has seen an increase in out-migration, but it was a trend that started before the pandemic.
“The easy answer was: the city is down, the suburbs are up,” Miller said. “And now it turns out that both are in place.”
So far, thanks to a limited supply, many suburbs remain in high demand. Fairfield County, Connecticut, for example, had 3,045 sales in the last quarter, the highest number during that period in more than 16 years, as well as the lowest inventory in 25 years, according to a report. from the brokerage firm Douglas Elliman.
But with prices jumping nearly 20% in some outliers, Miller doesn’t expect the gains to continue for long, in part because the allure of many suburbs is affordability, relative to markets. big cities. The extent to which remote working will remain a feature of life after the virus is also still unclear.
“Manhattan has finally joined the party,” he said, referring to the city’s sales turnaround. “But we don’t know if this is the party we want to be in – because there is some uncertainty about how it will play out.”
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