About the current seller's market
Updated: Dec 19, 2021
As anyone looking for a house these days may feel, the real estate market is an extremely hot seller’s market. Today, I wrote a blog about why and how the market is different from previous years. I wish my blog is helpful for my readers to make a smarter real estate transaction in this market.
As those who are looking for a house these days know well, there is a house inventory shortage in the current market so that the existing inventory cannot meet the rising demands of potential buyers. And this situation drives the house price to rise.
Of course, there are many reasons, but the following three things are most obviously fueling the rising demand in the current market.
Historically low-interest rate
The first, of course, is the low mortgage interest rate. These days, the interest rate seems to rise again little by little. However, it is still ridiculously low compared to the previous year.
Looking at the statistics shown above by Freddie Mac, the average interest rate in the 1970s was 8.86%, 12.7% in the 80s, 8.12% in the 90s, 6.29% in the 2000s, and 4.09% in the 2010s. For reference, the average interest rate on February 27th was 3.118%.
If it is a bit difficult to clearly understand what the above figures mean, think about it as follows. Suppose you buy a $400,000 house with a 20% down payment. If your interest rate is 3.118%, your monthly payment is about $170 lower compared to 4.09% interest rate, $2,040 lower in yearly payment, and $16,000 to $20,000 for about 8 ~ 10 year payment (American lived in one house for 8-10 years in average).
Outgoing Migration from Metro
From the above graph showing the US Federal bank data, you can clearly see how severe the depopulation in the city center has become after the coronavirus. Then, what changes have fueled this phenomenon since COVID?
First of all, after the COVID, work from home has become normal in our lives, and many systems and technologies were created to support this change. People no longer have to go to work every day. As a result, many people will move to a suburb with a better quality of life, such as a bigger living space, better schools, and more things to enjoy as a family.
Second, many people came to the suburb, avoiding contact with more people that couldn't be helped in the city center. The city center has a higher population density and the rate of travel by car is lower than in suburbs, so there is no choice but to be in contact with more people on the streets and shops. In particular, in high-rise condos and apartments, contact with other people in public facilities such as elevators, mailrooms, and sports facilities is inevitable, so many people consider moving to suburbs.
It can be viewed as similar to the current stock market. Because people frequently heard about the low-interest rate and house purchase stories, some of them feel left lonely. In fact, about 20% of the potential customers I consult with say, they are motivated to buy a house because people around them are talking about buying a house.
Then, how hot the current real estate market is?
If we compare the real estate market in January 2021 and January 2020 (before the corona outbreak) through data from the National Association of Realtor (NAR),
The number of days between starting a listing and making a sales contract was cut in half.
The average number of days in January 2020 was 43 days, whereas in January this year it was only 21 days.
The competition per house has become fierce.
For 2020, the average number of offers per house was 2.3. However, homes sold in January received an average of 3.7 offers.
The average house price has risen 14.1%.
The average price of homes sold across the United States in January last year was $266,300 whereas it is $303,900 in January this year.
Looking at various economy-related articles, there are predictions that the house price will increase further and the mortgage interest rate will gradually increase for the next couple of months. That means the real estate market will be even more unfavorable to buyers. However, as you can see from the stock market these days, the volatility of the market is terrifying. Therefore, no one knows how the market will change in the second half of this year.
What I mean is that my article is just a tiny tip of an iceberg. Therefore, please just refer as a part of your analysis. And when you purchase real estate, please behave wisely according to your economic situation, life plan, etc.