December 2020 Housing Market Update

November is over, December is here, so it must be time for my monthly real estate market update.

Follow along as I walk you through current housing market conditions and how the year has progressed when compared to previous years. Finally, my conclusion will give you an idea of where the market is heading in 2021, and which factors will decide its future.

Start by looking at the current listings for sale in Tallahassee. They are sorted from highest to lowest price. Take a look as the asking prices decline, the percentage of homes under contract goes through the roof. There are even more for sale that are marked "pending," though they have been removed from our search as they are about to close with another buyer.

Homes For Sale In Tallahassee Today

The following homes are a dynamic list of what's available in Tallahassee right now. It's updated every 15 minutes, so you can be assured that it's the best information available on Tallahassee real estate listings.

I include listing in my monthly report so that our readers can observe the high-rate of listings under contract. It's like we've never seen before!

Video Housing Report

Year Over Year Home Sales Rise (AGAIN)

The first graph in today's report shows how each month's sales compared with the same month the year prior. We refer to this as the year-over-year home sales report.

Year over year home sales rose 15% in November, registering the third-straight month of gains and four out of the past five months.

Low mortgage interest rates have buyers chomping at the bit to get into a home before rates begin to rise. It will be interesting to see the growth in bidding wars as we go through the (traditionally) lowest inventory levels of the years.

Sellers usually wait until after the new year to hit the market, but prudent sellers are jumping in early and watching buyers bid up home prices. If you are planning to move now or in the next few months, jump into this market now so that you can sell and then buy a home with today's low mortgage interest rates.

Year To Date Home Sales Surpass 2019

This next graph shows the number of homes sold during the first eleven months of each year. It allows us to compare the real estate market at the end of November with 18 previous years (each through November as well).

For the first time since March, I'm happy to report that home sales in 2020 are higher than they were last year. In fact, 2020 has now moved into the fourth-best year ever position, trailing only 2004 through 2006 when speculative buyers caused the market to explode.

What's so exciting about this graph is that we are seeing organic demand strong and healthy, with no substantial inorganic demand skewing the numbers (if you would like a good explanation of these two types of demand in the housing market, click here to see a recent report about the potential for a new housing bubble).

Mortgage Interest Rates Hit New Low (AGAIN)

The next graph in today's housing market report explains the ferocity of buyer demand despite the pandemic occurring all around us.

The mortgage graph shows 50 years of monthly mortgage interest rates. We've seen them as high as 18.45% and as low as 2.77% (the current rate). Over the past fifty years, the average rate has come down to 7.91%, which is a whopping 5% higher than today's rate!

Why are buyers so hot? Because today's rate is only 35% of the fifty-year average! That means your monthly mortgage payment buys a whole lot of house right now, and that buying power will fall when interest rates rise. When you consider that prices are moving higher fast right now, you should know that your buying power is stronger now than when prices and rates move higher!

Status Of Current Home Listings

This next graph shows that there is a higher percentage of homes for sale in Tallahassee are under contract with buyers than ever before. That means slim pickings for buyers and favorable market conditions for sellers. Nothing is more frustrating as a buyer than finding the perfect home, only to find out somebody else beat you to it, but that is what is happening to many buyers today.

Nearly one-half of all listed homes for sale are already under contract. The green line in the graph above shows that 49% of the current listings are already under contract, and the one-year trend of the under-contract percentage is at an all-time high of more than 45%.

Hopefully, we'll see more sellers enter the market these next few months, and perhaps see a dip in this ratio. But don't be surprised to see it continue higher if too few sellers list their homes.

Let's discuss what this means exactly for today's buyers, and we'll compare it with what buyers were seeing at the beginning of this graph in 2011.

As I produce this report, there are 1,117 homes for sale in Leon County, but only 568 of them are really available as buyers have the other 549 already under contract.

So a buyer today has just 568 homes available to purchase. At this time in 2011, there were exactly twice as many homes available, and there were far fewer buyers looking at them. The competition for the few homes is so high today, buyers don't have time to think, they must react when a new home hits the market.

This means today's buyers have to be prepared well ahead of time. If you go looking at houses before you get your finances in order, expect to have your heart broken. You will lose out on the home you love, only to find homes more expensive once you get your affairs together.

I strongly encourage all buyers to meet with a buyer's agent to put together a complete acquisition plan so that when the right home is found, you can make it your own. Remember, other buyers will be bidding on the home too, so you have to appear strong so that the seller will consider your offer.

Annual Real Estate Appreciation

The best way to measure real estate appreciation across the market is to measure the change in the median existing-home value each year. We simply record the price per square foot of each home sold and then find the median for each year.

For the first ten or more years of my career, we saw appreciation average a little more than 3% each year. But the craziness of the housing market in the early 2000s has created chaos since.

The graph above plots the change in the median home value each year. Blue bars show growth, red bars show declines.

The graph shows clearly that 2020 is seeing home values soar. Through November, homes have appreciated 9.1% in 2020, and I expect this to move even higher by year's end.

If builders don't ramp up production for 2021, it is likely we'll see double-digit appreciation next year. To put that into perspective, that means a $250K home purchased in December 2019 will be worth more than $300K in December 2021!

Median Home Price

Home affordability is facing an interesting ride right now. On the one hand, mortgage interest rates keep falling, making homes more affordable. On the other, prices are rising fast, reclaiming the affordability gains.

This graph shows the median home price each year (the median is not the average, rather it is the price of the home in the middle when all homes are lined up according to sales price). 

This graph shows the rapid rise in home prices. The median home price for existing homes began the year at $203,000, but currently sits at $228,275 and rising. That means the middle of the market is 12.4% higher today than when we began the year in January.

Fortunately for buyers, interest rates have dropped enough since then that the monthly payment to carry the median home has slightly declined! But this is a short-term opportunity (unless you believe interest rates will remain this low for a long period of time).

How Tough Is It For Today's Homebuyers?

So far, I believe I've made it clear that the supply of homes for sale is far too low and the competition for available listings is fierce among buyers. Our next graph serves to demonstrate how this imbalance impacts the home buying experience.

Here, we see the percentage of homes sold each month. During normal market conditions, about 17% of the homes sell each month. But look to the right side of the graph, we're often doubling that amount in recent months.

A red dot is plotted each month to show the percentage of the inventory that sold. If there were no seasonality in real estate, we would expect to see about 1/6th of the homes sell each month (16.7%).

As seasonality is real, we actually expect to see roughly 4 months above 17%, 4 months near 17%, and four months below 17% during the different times of the year. This graph makes it clear, these are not normal times.

When the market was coming out of its collapse, we went more than 8 years without a single month falling within the "normal" range. There were just too many homes on the market and it was common for fewer than 1/10th of them to sell each month.

Now, low inventory levels have the opposite results. About 1 in 3 homes listed for sale sold over the past six months. That means when buyers go looking at homes, there is not much out there that is not already under contract with other buyers.

How 2020 Ranks For Home Sales

The final graph in today's report was created from home sales in Tallahassee from January through November of each year, beginning in 2003 and ending in 2020. It ranks each home price segment from 1 to 18 based upon how well 2020 is performing (with a rank of "1" if 2020 has the most home sales down to "18" if 2020 has the fewest number of homes sold of all 18 years).

It's important to understand that each price segment includes all home sales from that price and higher, all the way to the most expensive home sale in 2020. So the easiest way to read this graph is from the bottom up.

We can see all homes priced more than $1M are enjoying the best year ever (ranked #1). The same is true for all homes priced above $950K. This group includes the homes priced from $950K to the very top of the market (not just homes from $950K to $1M). The same is true for each price point thereafter in the graph.

We see a pocket of homes priced from $700K only having the second-best year ever, but overall, we have never seen more homes sold in Tallahassee priced over $200,000! This is the best year ever when we start at that point.

So why is the overall market in 2020 only ranked as the fourth-best year of the past 18? Look at the second line down in the graph. Homes priced below $100K are ranked #14 out of the past 18 years! It is the low-end of the market holding the overall ranking down.

Cheap homes in Tallahassee are going away, or you could say "cheap" is being reclassified as homes priced under $150K. And I suspect you know why.

Tallahassee has a housing shortage, and builders cannot deliver homes at these lower prices. That means homes priced below what builders can provide are appreciating like crazy.

My Conclusion

The Tallahassee housing market is low on inventory and high on demand, so we will continue to see skyrocketing prices for the foreseeable future.

When mortgage interest rates rise, it will have an immediate and significant impact on demand if they rise too quickly.

The luxury homes market could very well go dormant, as it has been super-hot over the past few years (and scorching hot in 2020). The top-end of the market is most susceptible to rising rates, so high-end sellers need to "make hay while the sun is shining!).

So long as rise rise gradually, we'll see demand cool in the market, but not in a damaging way. The lowered demand will increase the relative supply of homes and hopefully slow the out-of-control appreciation of home values. I would expect to see this happen fairly soon after the new year, but forecasting the future of mortgage interest rates is highly speculative on my part.

Market conditions make it the best time I've seen in my 30 years selling homes in Tallahassee to sell a home within a predictable time frame. If you are wanting to move, do so now so that you can sell your current home fast and get into your new one at a 2.77% 30-year fixed rate!

When moving to, in, or from Tallahassee, you will fare better if you work with a local expert. We are here to help. If you have further questions on the Tallahassee real estate market, you can leave a comment below, give us a call at (850) 366-8917, or drop us a note and we'll give you the local information needed to ensure a successful, smooth transaction.

As a local born and raised in Tallahassee with a focus on customer service, I promise you'll find great success when working with Joe Manausa Real Estate, just as have our past customers. You can read thousands of their reviews reported on Google, Facebook and Zillow right here: Real Estate Agent Reviews Tallahassee.

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