Tallahassee Real Estate BlogRecently posted or modified blog posts by tag - Housing Market 2021https://www.manausa.com/blog/Copyright Manausa.com2021-12-15T09:07:12-07:00tag:manausa.com,2012-09-20:25085Surge In Home Sales - Will This Be A Record Year?<img src="https://assets.site-static.com/userfiles/663/image/surge-in-home-sales-record-year.jpg" width="800" height="533" alt="Home sales are surging higher and higher with the only question left for 2021 is will this be record-setting?" title="Surge In Home Sales - Will This Be A Record Year?" class="img_box_center" />Home sales are surging higher and higher with the only question left for 2021 is will this be record-setting?
Today's short report examines home sales through November, and it's shaping up to be a strong year.<br /><br />2021 To Set Home Sales Record?
Year-Over-Year Home Sales Surge
The first of our two graphs today shows year-over-year home sales each month. If sales were positive, the line for the month is plotted in green and extends above the horizontal axis. When sales declined, the month is plotted in red and extends below the horizontal axis.
<img src="https://assets.site-static.com/userfiles/663/image/year-over-year-home-sales-december-2021.jpg" width="800" height="582" alt="Year-Over-Year Home Sales Surge In November 2021" title="Year-Over-Year Home Sales Surge" class="img_box_center" />
For the 15th consecutive month, year-over-year home sales grew. The 15% gain in November was especially strong when you consider how active the market was in the latter half of 2020. Many people stayed out of the market when COVID hit, so we saw a very robust finish to 2020. Nevertheless, 2021 has been even stronger.<br /><br />The second and final graph in today's Tallahassee real estate market report shows year-to-date home sales.
Year-To-Date Home Sales Up 16%
This graph plots the number of home sales from January through November of each year.
<img src="https://assets.site-static.com/userfiles/663/image/year-to-date-home-sales-december-2021.jpg" width="800" height="582" alt="Year-To-Date Home Sales Up 16% Through November 2021" title="Year-To-Date Home Sales Up 16%" class="img_box_center" />
As of November, the 2021 calendar year has posted the second-most home sales in all years for the Tallahassee real estate market. The 4,744 homes sold thus far in 2021 are 4.9% fewer than the 4,987 homes sold through November of 2005. I would bet there's no chance that 2021 will set a new record, though it has been a very strong year.
Is The Pace Of Home Sales Sustainable?
The fact that we're selling more homes today than in the past is not alone a reason for concern, after all, we have a growing population. Leon County, Florida today has roughly 40,000 more people living here than sixteen years ago in 2005 when the previous record was set (a growth of about 16%).
While the pace of sales (again) is not a great concern, I am troubled by the rapid rise in home prices. The lack of homebuilding in Leon County over the past five years has led to tight inventories, bidding wars on most homes except the most expensive ones, and a sense of a coming day of reckoning when mortgage interest rates begin to climb.
If you were planning on waiting to buy a home in a year or two, you should reconsider. Home prices will be significantly higher, and the rate at which you borrow money for the home will be higher too. That's the double-whammy that I believe will hit the housing market and bring unit sales down far below the current rate we're seeing.
Take advantage of these low mortgage interest rates today, they are likely the lowest you will see for the rest of your life!2021-12-06T03:51:00-07:002021-12-15T09:07:12-07:00Joe Manausatag:manausa.com,2012-09-20:24557Active Homebuyers Must Track These Real Estate Supply Trends<img src="https://assets.site-static.com/userfiles/663/image/supply-update-november-2021.jpg" width="880" height="587" alt="Comprehensive report on the supply and demand for homes in November 2021" title="Real Estate Supply Update November 2021" class="img_box_center" />Have you been home shopping in the past year? You go online, you find a few homes you'd like to see, so you call your Realtor to arrange a time to go see them. Yep, that's what homebuyers have been doing since listings moved to the internet.
But when you talk with your agent, you are told that those homes are already sold! Another buyer has already got them tied up. It's so frustrating. Today, you really have to track the supply and demand for homes so that you know just how aggressive and flexible you will need to be when it comes time to find a home to buy. Our report today will give you everything you need, including a better way to find the available homes online.
I've included a list of the current active listings in Tallahassee, sorted by price from high to low. As you scroll down towards the median home, take note of just how many properties are already under contract with buyers!
Active Listings In Tallahassee<br /><br />Housing Supply Update
This graph displays the current homes for sale, separated by whether or not they are under contract with buyers.
<img src="https://assets.site-static.com/userfiles/663/image/status-of-listed-properties-11-2021.png" width="880" height="641" alt="Graph shows the status of active listings in the Tallahassee MLS November 2021" title="Status Of Active Listings in Tallahassee November 2021" class="img_box_center" />
Homes for sale that are already under contract with buyers are shown in blue, while those for sale not yet under contract with buyers are shown in red. The ratio of homes under contract to all homes listed for sale is shown as a solid green line and measured on the right vertical axis. The green-dashed line reports the one-year trend of this under-contract percentage.
Right now, there are 503 homes for sale in Tallahassee that are not yet under contract with buyers. This is the most we've recorded since the 535 that were available in January. To provide some context for these numbers, Tallahassee has averaged 470 homes sold and closed in each of the past eight months, so the actual available inventory is only enough inventory for about five weeks worth of buyers (meaning it's just over one month's supply of homes that are available!).
The percentage of homes under contract rose last month, something that is not uncommon were it not for such a large leap. Currently, 60% of the listings in the MLS are under contract with buyers which is significantly higher than the 49% recorded one year ago.
When we take in the big picture of the graph, it is clear how things are so different today than they were ten years ago. It shows how the market has gone from a strong buyers' market to a strong sellers' market.
From left to right, look at how the percentage of homes under contract has reversed. On the left side of the graph, the height of the red bars was about four times the height of the blues, meaning there were far more homes for sale NOT under contract than there were homes under contract with buyers.
Right now, 60% of all current listings on the market are already under contract with buyers, meaning that today, three out of every five active listings have contracts today versus less than one-half just one year ago.
Buyers must understand that when they go online and look at homes for sale, most of the homes they see are not really available, as other buyers have them secured with contracts. I can't tell you how many times a buyer calls us to go see a home they found on a national real estate website and we have to tell them it has already been put under contract. This is why we recommend you use our <a href="https://www.manausa.com/idx/results/?searchtype=3" title="Search homes for sale in Tallahassee">property search tool</a>, it updates every 15 minutes and is the best source of current listing statuses on homes for sale in Tallahassee.
As I have been saying for years, the supply of homes for sale is far too low for buyers to be able to casually shop for a home. The situation remains slightly better than it was in the summer, so if you are a buyer in the market, you might want to get aggressive right now before the rest of the market responds.
Let’s take an in-depth look at the supply side of the housing market and examine exactly what's happening that is causing the low level of availability of homes for sale.
Fresh Listings Year-Over-Year
This graph shows how each month fared (percentage-wise) compared to the same month in the prior year for fresh new listings entering the MLS.
I use the term “fresh” to describe homes listed for sale that were not previously listed. These are homes that are truly new to the market, not merely old inventory that was canceled and relisted by the agent or a new agent.
<img src="https://assets.site-static.com/userfiles/663/image/year-over-year-fresh-listings-tallahassee-november-2021.png" width="880" height="641" alt="Graph of year over year fresh new listings in Tallahassee November 2021" title="Year Over Year New Listings November 2021" class="img_box_center" />
The past two months have recorded declines in the number of homes listed for sale in 2021 when compared to the same months in 2020, but let me remind you that COVID had a huge effect on home sellers last year. Homes were withheld from the market in the second quarter last year but then poured into the market in the third and fourth quarters. This is a contributing factor in the gains over the summer and the declines in the past two months. Right now, I feel the market has returned to its normal seasonal flow.<br /><br />Fresh Resale Listings
While the previous graph showed a month-to-month comparison of fresh new listings, this one reports fresh listings of existing homes from January through October of each year.
We see that the number of fresh (existing home) listings has risen 9% in the first ten months when compared to the same ten months last year. So how does 2021 compare with the previous seven years? 2021 now ranks at the top of the recent eight years when ranking them by the number of fresh existing listings entering the market.
<img src="https://assets.site-static.com/userfiles/663/image/new-existing-homes-for-sale-november-2021.png" width="880" height="641" alt="graph shows the number of fresh existing homes listed for sale November 2021" title="Fresh Existing Listings In Tallahassee November 2021" class="img_box_center" />
The housing market started the year with too few homes for sale, so even a healthy 9% rise in fresh existing home listings has done nothing to bring balance to the market. And it won't in the future either.
Existing listings have been added to the inventory, but the majority of these sellers become buyers so the net effect in the market is low. The continuing low supply of homes coupled with heightened demand has pushed prices higher and has accelerated real estate appreciation to unhealthy levels.
You might believe this is "good news" for sellers as their homes are now worth more, but you also have to remember that most sellers are going to be buying another home in the same market (with the same soaring prices and the same lack of inventory).
Of course, the existing home sales market does not stand alone. We also need to examine what the home builders have been doing.
Fresh New Construction Listings
Similar to the previous graph that showed fresh listings for resale homes, this graph shows freshly listed new construction homes.
<img src="https://assets.site-static.com/userfiles/663/image/new-construction-homes-for-sale-november-2021.png" width="880" height="641" alt="The number of new construction homes listed for sale in Tallahassee over time November 2021" title="Fresh New Construction Listings In Tallahassee November 2021" class="img_box_center" />
The number of listings for new construction homes entering the market is just 60% of what was brought to the market last year. The 395 new construction listings are down 40% from the 654 new construction listings created through October 2020. This low production level is not going to solve our problem. Tallahassee needs local builders to produce more homes.
With home builders producing homes at a slower rate, rapid appreciation has taken over the housing market. Last year's appreciation of 9.3% was nearly triple what we would expect in an average year, and this year's rate currently is annualized at more than 13%. At this point in time, I see don't see this rate cooling very much next year either unless we see a major spike in mortgage interest rates.
New Versus Existing Home Sales
This graph plots new home construction sales versus existing home sales annually from January 1991 through October 2021. The number of existing homes sold is shown in blue, while the number of new homes sold is shown in red. The gray line plots the new construction percentage share, while the dashed gray line plots its ten-year average.
<img src="https://assets.site-static.com/userfiles/663/image/new-versus-existing-homes-november-2021.png" width="880" height="641" alt="New construction home sales versus existing home sales November 2021" title="New Versus Existing Home Sales November 2021" />
Back in the 1990s, builders were bringing more than 1,100 new homes per year to the market. In the next decade, the average was over 1,300 homes. The last decade saw that average decline to 434 homes per year.
Initially, the decline in new construction was just what the market needed, as the supply of homes was far above the level of demand and it took years to consume all the extra homes. That correction was completed in 2016, since then, we have needed "normal" building operations to ensue.
With today's relative supply of homes for sale sitting near three months of supply, our inventory could easily be doubled, so builders today can comfortably permit another 1,000 homes on top of what is already permitted. You have to remember, while demand is high, it has been stifled by a lack of inventory, so having more homes in the past would have resulted in more sales.
Slow production means that builders missed an opportunity to sell an additional several thousand homes over the past five years. The void that these missing new construction homes did not fill has created a lopsided market with home values going out of control. So let me make this clear, had we built more homes since 2016, home values today would not be growing at double-digit appreciation rates. Several thousand additional homes built since 2016 would have kept growth close to traditional rates.
Now that we've covered existing and new construction homes separately, let's examine the global view of the supply side of our market, where we combine new homes with used homes which produces the following graph detailing the total number of fresh new listings that have entered the market through October.
Fresh Listings Of Homes For Sale
This graph merges the supply of homes found in the previous graphs. The combination of builder homes and existing homes has 2021 ranked #1 of the past 8 years for new inventory entering the housing market. Remember, today's sky-high demand has created optimal market conditions for sellers, so even with the top rank, we're seeing historically low inventory levels.
<img src="https://assets.site-static.com/userfiles/663/image/new-real-estate-listings-tallahassee-fl-november-2021.png" width="880" height="641" alt="Tallahassee real estate market new listings report November 2021" title="Fresh New Listings November 2021" class="img_box_center" />
This year might have allowed a turn in the supply of homes for sale were it not for the decline of new construction home listings. In fact, when coupled with heightened demand, the current stream of fresh listings has kept the relative supply of homes for sale near record lows. So what does this mean?
It means tough sledding for buyers. Buyers right now are feeling the fear of missing out as we are seeing small but steady increases in mortgage interest rates, but we find the inventory far too low to satisfy this demand.
Even as we've seen an increase in existing home sellers, we've seen demand remain strong and steady. Supply remains low, demand remains high, so home prices are going through the roof.
Stale Inventory No Longer A Major Supplier
Another set of listings we track is those that have recently been listed for sale, left the market without selling, and then returned with a new real estate broker. These are the "stale" listings.
<img src="https://assets.site-static.com/userfiles/663/image/stale-listings-for-sale-november-2021.png" width="880" height="641" alt="Stale listings re-entering the housing market with a new real estate broker November 2021" title="Stale Real Estate Listings November 2021" class="img_box_center" />
The graph above shows the stale listings coming back into the market each year from January through October. With inventory low and home sellers' success rate near 90%, this list continues to get smaller. The 359 stale listings that have entered the market through October in 2021 measure 59% fewer than the 867 stale listings that entered the market in the first ten months of 2015, and 22% fewer than what we reported last year.
The major takeaway you can glean from this graph is that one major segment of the supply chain has been depleted. For many years, we always had a bank of homeowners who had demonstrated a desire to sell, and it was from this bank that we drew the inventory needed to keep the market in balance. When demand grew, we pulled harder from the stale listings. When demand declined, we drew less. Next year, there will be very few of these homes from which to fill our declining supply of homes.
The number of listings that go stale will never go away, but today's count is fewer than any year going back to the market crash of 2006.
Months Of Supply Of Homes
This table measures the supply of homes for sale, relative to the current rate of demand. The numbers in the table represent the number of months of supply of homes for sale.
Historically, a market with six months of supply has produced steady home sales and an appreciation rate of just over 3%. When the relative supply drops below 6 months of supply, we call this a seller's market as there are more buyers than sellers. When the numbers rise above 6, we refer to that as a buyer's market, as there are more sellers than buyers.
It is common to have a combination of conditions across the overall market. Not all areas and price ranges have reacted the same to the primary influences on the housing market, so this is why we have to segment the market to pay close attention to the differences that exist.
The table segments the market through home price categories in $50,000 increments up to $1M. Red-shaded areas reveal a sellers' market condition. Orange areas remain in a buyers' market, while the few white-shaded areas are areas that are fairly balanced.
<img src="https://assets.site-static.com/userfiles/663/image/months-supply-homes-november-2021.png" width="700" height="597" alt=" the supply of homes for sale, relative to the current rate of demand in November 2021" title="Relative Supply Of Homes For Sale November 2021" class="img_box_center" />
These results clearly show that the supply of homes for sale, relative to the current hot rate of demand, remains near a record low. With the decline of fresh new listings combined with the growth of the buyer pool, the months of supply of homes for sale is woefully low. This table shows you why such a high percentage of our current listings are already under contract with buyers.
Right now, the overall market below $800K is facing strong sellers' market conditions. There are areas and price ranges on the west side of town down to about $300,000 that remain in a buyers' market, and overall across Leon County, homes priced above $1M remain in a glutted buyers' market.
The very bottom line of the table shows you last month's relative supply, and we see that it declined across all four quadrants. We'll keep a close eye on this to see any new trends forming, but for now, pay close attention to the area and price ranges for the homes you plan to sell and buy. Overall, know that market is crazy hot right now, so you have to have a good plan.
For every five buyers that closed on homes in October, there were at least three more buyers that missed out on the chance to buy a home. The closings could have been nearly doubled the rate closed had there been more available listings.
We need builders to step up and produce inventory in the areas and price ranges shaded in red if they are capable. Obviously, we're not going to see a builder bring in new units under $150K in NE Tallahassee, but there are a lot of red-shaded areas in our table that could be pursued.
If I were a builder and wanted to ensure that I did not build homes that the market does not need, I would look at the red-shaded areas with a value below 5 months of supply. The market is demanding these homes, why not build and sell them?
If you are a local home builder who would like analytical guidance on where and what to build, I’m happy to help, just give me a call.
For non-builders, you should know that we are on the backside of the hottest seller's market ever, so if you've been thinking about moving, it's time to act.
Right now, mortgage interest rates remain very low resulting in sky-high demand for your home. Rising rates are gradually reducing demand, so as time goes by there will be fewer buyers for your home.
Rising mortgage interest rates won't likely reduce the value of your home any time soon, but the rising cost of borrowing money will increase your monthly payment on the home you buy next.
If you plan on buying a home after you sell your current one, take advantage of low mortgage interest rates, or just take advantage of the strong demand that these low rates have created.
One day in the future, you will look back at 2021 as perhaps the last chance ever to get a home at these low prices and be financed with a 3% mortgage interest rate. In the future, not only will home prices be higher, but so too will be the rate you pay when you borrow money for the home. Don't let this opportunity slip away!2021-11-08T03:52:00-07:002021-11-16T09:44:32-07:00Joe Manausatag:manausa.com,2012-09-20:24019Looking For Signs Of A Housing Market Collapse?<img src="https://assets.site-static.com/userfiles/663/image/signs-housing-market-collapse.jpg" width="880" height="587" alt="In my pursuit to find evidence of an impending housing bubble, I continue instead to find evidence of the opposite." title="Signs Of A Housing Market Collapse?" class="img_box_center" />The real estate doomsayers are getting louder in their calls for the collapse of the housing market, so I continue my quest to find supporting (or opposing) evidence in order to guide our customers.
During the buildup of the housing bubble in 2006, we saw the inventory of homes for sale continue to swell, even as new contracts on homes declined. For this reason, I keep a very close eye on the supply of homes for sale. In my pursuit to find evidence of an impending housing bubble, I continue instead to find evidence of the opposite.
Today, we'll look at this new trend and speculate on its impact on home prices. First, take a quick peek at the supply of homes for sale in Tallahassee. You will notice that as prices drop below the top 5% of the market, the percentage of homes under contract with buyers rises to levels we do not normally see in October.
Tallahassee Homes For Sale<br /><br />Housing Market Collapse?
The Entire Housing Market
<img src="https://media3.giphy.com/media/3o6ZsTHSNxJCmZJJf2/200.gif" width="270" height="200" alt="Chris Farley - Van down by the river" title="I live in a van down by the river" class="img_box_right" />When we look at the overall housing market, we need to consider the options consumers face. They can buy or they can rent. They can live in a single-family home, a multi-family home, a mobile home, a dorm, an extended-stay hotel or hospital, student dorms, military barracks (or even in a van down by the river).
All of these property types must be considered when evaluating the overall health of the housing market because strength in one could very well cause weakness in another. For example, if a significant percentage of single-family home investors decided to sell their homes, it would add homes to the "for sale" market while removing homes from the "for rent market." In the short term, we might see home price growth slow down while seeing rents rise.
So it is important to study each segment of the housing market, looking for supporting or opposing trends that can provide insight into future market movements.<br /><br />Rents Are Soaring Too
I have been saying that we need more homes for the past five years. The US population has increased by more than 30 million people since the housing bubble burst, yet the pace of new home production has dropped dramatically.
The lack of new home production has created scarcity in the "for sale" market, and I wondered if it was having a similar impact on the "for rent" market. The graph below plots the median market rent in the US since 2014.
<img src="https://assets.site-static.com/userfiles/663/image/median-market-rent-october-2021.jpg" width="880" height="641" alt="Graph of median market rent October 2021" title="Median Market Rent October 2021" class="img_box_center" />
The graph above was created from a dataset produced by Zillow, created to share rental rates from most of the larger US metropolitan areas. Zillow estimates the median by cutting a slice out of the middle of the rental market (by choosing listed rents that fall into the 40th to 60th percentile range for all homes and apartments). The blue field plots the median monthly rental rate, while the red line reports the year-over-year change of this rental rate.
Does this look familiar to you? It sure does to me!
Apparently, it’s not just home prices and values that are skyrocketing, so too are rental rates. August rental rates were nearly 13% higher than were rental rates in August of last year, and that is awfully close to the runaway rate of appreciation that we’re seeing with existing home sales. This only reinforces my concerns about home affordability and a decline in the homeownership rate.<br /><br />Future Housing Market Reports
I'm exploring new data sources and hope to produce an examination of rents, prices, and median incomes. When adjusted for inflation, I believe it will give us a clear view of home affordability and where the market will be heading when the Fed gets aggressive on interest rates and we see these (wonderful) historically low mortgage interest rates fade away.
If you have any thoughts or questions on how we can better explore local and US housing market conditions, just drop a comment below and I'll consider it for future posts.2021-10-04T02:51:00-07:002021-10-12T08:26:47-07:00Joe Manausatag:manausa.com,2012-09-20:22888Real Estate Supply Update August 2021<img src="https://assets.site-static.com/userfiles/663/image/real-estate-supply-aug-2021.jpg" alt="Real estate supply report Tallahassee August 2021" title="New Listings Report August 2021" class="img_box_center" width="880" height="587" />
It's time to provide an update on the median home in Tallahassee, and I can tell you that we're seeing prices and values soar right now.
Today's report uses data from the Tallahassee real estate market, but from what I'm reading and hearing from agents around the country, our report could easily apply to those market areas too. The loud and clear message from agents everywhere is "we need more homes!"
Follow along as I dissect the supply-side of the housing market, examining what’s coming in, what's under contract, and what present levels mean for home values and buying a home today.
I've included a list of the current active listings in Tallahassee, sorted by price from high to low. As you scroll down towards the median home, take note of just how many properties are already under contract with buyers!
Active Listings In Tallahassee<br /><br />Real Estate Supply & Demand UPDATE
Real Supply Of Homes Best In 6 Months
This graph displays the current homes for sale, separated by whether or not they are under contract with buyers.
<img src="https://assets.site-static.com/userfiles/663/image/active-listings-status-august-2021.png" width="880" height="641" alt="Graph shows the status of active listings in the Tallahassee MLS" title="Status Of Active Listings in Tallahassee August 2021" class="img_box_center" />
Homes for sale that are already under contract with buyers are shown in blue, while those for sale not yet under contract with buyers are shown in red. The ratio of homes under contract to all homes listed for sale is shown as a solid green line and measured on the right vertical axis. The green-dashed line reports the one-year trend of this under-contract percentage.
Right now, there are 483 homes for sale in Tallahassee that are not yet under contract with buyers. This is the most we've recorded since the 535 that were available in January. To provide some context for these numbers, we saw about 530 homes sold and closed in each of the past two months, so the actual available inventory is only enough for about four weeks worth of buyers (meaning it's less than one month's supply of homes that are available!).
The percentage of homes under contract dropped for the second month in a row, but this is due to the normal seasonal influx of new listings as opposed to a slowing level of demand from buyers. Currently, 60% of the listings in the MLS are under contract with buyers which is significantly higher than the 48% recorded one year ago. I expect to see the percentage of homes under contract rise again next month as we've reached the end of the historic-seasonal rush of sellers listings their homes.
When we take in the big picture of the graph, it is clear how things are so different today than they were ten years ago. It shows how the market has gone from a strong buyers' market to a strong sellers' market.
From left to right, look at how the percentage of homes under contract has reversed. On the left side of the graph, the height of the red bars was about four times the height of the blues, meaning there were far more homes for sale NOT under contract than there were homes under contract with buyers.
Right now, 60% of all current listings on the market are already under contract with buyers, meaning that today, three out of every five active listings have contracts today versus less than one-half just one year ago.
Buyers must understand that when they go online and look at homes for sale, most of the homes they see are not really available, as other buyers have them secured with contracts. I can't tell you how many times a buyer calls us to go see a home they found on Zillow and we have to tell them it has already been put under contract. This is why we recommend you use the <a href="https://www.manausa.com/idx/results/?searchtype=3" title="Search homes for sale in Tallahassee">manausa.com property search tool</a>, it updates every 15 minutes and is the best source of current listing statuses on homes for sale in Tallahassee.
As I have been saying for years, the supply of homes for sale is far too low for buyers to be able to casually shop for a home. The situation has improved slightly for the time being, so if you are a buyer in the market, you might want to get aggressive right now before the rest of the market responds.
Let’s take an in-depth look at the supply side of the housing market and examine exactly what's happening that is causing the low level of availability of homes for sale.
Fresh Listings Year-Over-Year
After three consecutive months of gains, the number of fresh listings entering the market fell in July.
<img src="https://assets.site-static.com/userfiles/663/image/year-over-year-fresh-listings-august-2021.png" width="880" height="641" alt="Graph of year over year fresh new listings in Tallahassee" title="Year Over Year New Listings August 2021" class="img_box_center" />
The graph above shows how each month fared (percentage-wise) compared to the same month in the prior year for fresh new listings entering the MLS.
I use the term “fresh” to describe homes listed for sale that were not previously listed. These are homes that are truly new to the market, not merely old inventory that was canceled and relisted by the agent or a new agent.
Three of the past four months have seen gains in the number of homes listed for sale in 2021 when compared to the same months in 2020, but let me remind you that April through June were the months that declined greatly last year when COVID became a reality in Tallahassee. So the gains this year were more a reflection of the decline last year than a rise this year.
I believe the same explanation can be used for the decline in July this year versus July of 2020. Last July, there was a surge of pent-up supply that hit the market that would have normally entered in months prior, so the big July month last year can be blamed for the apparent decline in fresh listings in July of this year.<br /><br />Fresh Existing Listings
While the previous graph showed a month-to-month comparison of fresh new listings, this one reports fresh listings of existing homes from January through July of each year.
We see that the number of fresh (existing home) listings has risen 9% in the first seven months when compared to the same seven months last year. So how does 2021 compare with the previous seven years? 2021 now ranks third-best of the recent eight years when ranking them by the number of fresh existing listings entering the market.
<img src="https://assets.site-static.com/userfiles/663/image/fresh-listings-august-2021.png" width="880" height="641" alt="graph shows the number of fresh existing homes listed for sale" title="Fresh Existing Listings In Tallahassee August 2021" class="img_box_center" />
The housing market started the year with too few homes for sale, so even a healthy 9% rise in fresh existing home listings has done nothing to bring balance to the market. The continuing low supply of homes coupled with heightened demand has pushed prices higher and has accelerated real estate appreciation to unhealthy levels.
You might believe this is "good news" for sellers as their homes are now worth more, but you also have to remember that most sellers are going to be buying another home in the same market (with the same soaring prices and the same lack of inventory).
Of course, the existing home sales market does not stand alone. We also need to examine what the home builders have been doing.
Fresh New Construction Listings
Similar to the previous graph that showed fresh listings for the existing homes market, this graph shows freshly listed new construction homes.
<img src="https://assets.site-static.com/userfiles/663/image/fresh-new-construction-listings-august-2021.png" width="880" height="641" alt="The number of new construction homes listed for sale in Tallahassee over time" title="Fresh New Construction Listings In Tallahassee August 2021" class="img_box_center" />
The number of listings for new construction homes entering the market is a little more than one-half of what was reported last year. The 249 new construction listings represent just over one-half of the 481 new construction listings created in 2020. This low production level is not going to solve our problem. Tallahassee needs local builders to produce more homes.
As a matter of fact, that was my message to homebuilders when I spoke to the Tallahassee Builders Association at their general membership meeting recently, and you can hear what I said by watching the video below.
With home builders producing homes at a slower rate, rapid appreciation has taken over the housing market. Last year's appreciation of 9.3% was nearly triple what we would expect in an average year, and this year's rate currently is annualized at more than 16%. As I have warned in previous reports, home values could very well surpass 20% growth this year.
New Versus Used Home Sales
This graph plots new home construction sales versus existing home sales annually from January 1991 through July 2021. The number of existing homes sold is shown in blue, while the number of new homes sold is shown in red. The gray line plots the new construction percentage share, while the dashed gray line plots its ten-year average.
<img src="https://assets.site-static.com/userfiles/663/image/new-versus-existing-home-sales-aug-21.png" width="880" height="641" alt="New construction home sales versus existing home sales August 2021" title="New Versus Existing Home Sales August 2021" />
Back in the 1990s, builders were bringing more than 1,100 new homes per year to the market. In the next decade, the average was over 1,300 homes. The last decade saw that average decline to 434 homes per year.
Initially, the decline in new construction was needed, as the market was grossly over-supplied and required time to consume all the extra homes. That correction was completed in 2016, so we needed "normal" building operations to commence.
With today's relative supply of homes for sale sitting at three months of supply, our inventory could easily be doubled, so builders today can comfortably permit another 1,000 homes on top of what is already permitted. You have to remember, while demand is high, it has been stifled by a lack of inventory, so having more homes in the past would have resulted in more sales.
Slow production means that builders missed an opportunity to sell an additional several thousand homes over the past five years. The void that these missing new construction homes did not fill has created a lopsided market with home values going out of control.
Now that we've covered existing and new construction homes separately, let's examine the global view of the supply side of our market, where we combine new homes with used homes which produces the following graph detailing the total number of fresh new listings that have entered the market through May.
Fresh Listings Of Homes For Sale
This graph reveals that the combination of builder homes and existing homes has 2021 ranked #3 of the past 8 years for new inventory entering the housing market. 2021 trails only 2018 and 2019, and if all the new home permits posted earlier this year turn into inventory, we might see 2021 move into the top position. Remember, today's sky-high demand has created optimal market conditions for sellers, so there is no reason for incoming listings to be so low.
<img src="https://assets.site-static.com/userfiles/663/image/residential-real-estate-inventory-august-2021.png" width="880" height="641" alt="Tallahassee real estate market new listings report" title="Fresh New Listings August 2021" class="img_box_center" />
This year might have topped all others were it not for the number of new construction homes declining. In fact, when coupled with heightened demand, the current stream of fresh listings has kept the relative supply of homes for sale near record lows. So what doe this mean?
It means tough sledding for buyers. Buyers right now are hyperactive due to near-low mortgage interest rates, but we find the inventory far too low to satisfy this demand. Now, let's make this simple. Supply is low, demand is high, so home prices are going through the roof.
Stale Inventory Is All But Gone
Another set of listings we track is those that have recently been listed for sale, left the market without selling, and then returned with a new real estate broker. These are the "stale" listings.
<img src="https://assets.site-static.com/userfiles/663/image/stale-real-estate-inventory-august-2021.png" width="880" height="641" alt="Stale listings re-entering the housing market with a new real estate broker August 2021" title="Stale Real Estate Listings August 2021" class="img_box_center" />
The graph above shows the stale listings coming back into the market each year from January through July. With inventory low and home sellers' success rate near 90%, this list continues to get smaller.
The 247 stale listings that have entered the market through July in 2021 measure 63% fewer than the 664 stale listings that entered the market in the first seven months of 2015, and 29% fewer than what we reported last year. The number of listings that go stale will never go away, but today's count is fewer than any year going back to the market crash of 2006.
Relative Supply Of Homes
This table measures the supply of homes for sale, relative to the current rate of demand. The resulting number for each area and the price range is measured in "months of supply," and what makes the market balanced is a measure of 6.0.
Historically, a market with six months of supply has produced steady home sales and an appreciation rate of just over 3%. When the relative supply drops below 6 months of supply, we call this a seller's market as there are more buyers than sellers. When the numbers rise above 6, we refer to that as a buyer's market, as there are more sellers than buyers. Red shaded areas reveal a seller's market condition. Orange areas remain in a buyers' market, while the few white-shaded areas are fairly balanced.
<img src="https://assets.site-static.com/userfiles/663/image/relatitve-supply-of-homes-for-sale-august-2021.png" width="880" height="641" alt=" the supply of homes for sale, relative to the current rate of demand in August 2021" title="Relative Supply Of Homes For Sale August 2021" class="img_box_center" />
The table segments the market through home price categories in $50,000 increments up to $1M.
These results clearly show that the supply of homes for sale, relative to the current hot rate of demand, remains near a record low. With the decline of fresh new listings combined with the growth of the buyer pool, the months of supply of homes for sale is woefully low. This table shows you why such a high percentage of our current listings are already under contract with buyers.
Right now, the overall market below $800K is facing strong sellers' market conditions. There are areas and price ranges on the west side of town down to about $300,000 that remain in a buyers' market, and overall across Leon County, homes priced above $800,000 remain in a glutted buyers' market.
The very bottom line of the table shows you last month's relative supply, and an interesting shift has occurred. Overall, the relative supply of homes for sale is the same this month as it was last month. But when we look at each quadrant, we see fewer available homes in NE Tallahassee and SE Tallahassee, the same relative supply remains for NW Tallahassee, but the relative supply of homes has grown in SW Tallahassee.
We'll keep a close eye on this to see if a trend is forming, but for now, pay close attention to the area and price ranges for the homes you plan to sell and buy. Overall, know that market is crazy hot right now, so you have to have a good plan.
For every buyer that closed on a home in July, there was more than one buyer that missed out on the chance to buy a home. The closings could have been more than double the rate closed had there been more available listings.
We need builders to step up and produce inventory in the areas and price ranges shaded in red if they are capable. Obviously, we're not going to see a builder bring in new units under $100K in NE Tallahassee, but there are a lot of red-shaded areas in our table that should be pursued.
If I were a builder and wanted to ensure that I did not build homes that the market does not need, I would look at the red-shaded areas with a value below 5 months of supply. The market is demanding these homes, why not build and sell them?
If you are a local home builder who would like analytical guidance on where and what to build, I’m happy to help, just give me a call.
For non-builders, you should know that this is the hottest seller's market ever, so if you've been thinking about moving, it's time to act.
Right now, mortgage interest rates remain very low resulting in sky-high demand for your home. Rising rates will eventually reduce demand, resulting in fewer buyers for your home.
Rising mortgage interest rates will not likely reduce the value of your home any time soon, but the rising cost of borrowing money will increase your monthly payment on the home you buy next.
If you plan on buying a home after you sell your current one, take advantage of low mortgage interest rates, or just take advantage of the strong demand that these low rates have created.
One day in the future, you will look back at 2021 as perhaps the last chance ever to get a home at these low prices and be financed with a 3% mortgage interest rate. In the future, not only will home prices be higher, but so too will be the rate you pay when you borrow money for the home. Don't let this opportunity slip away!2021-08-23T02:50:00-07:002021-08-24T08:46:41-07:00Joe Manausatag:manausa.com,2012-09-20:22847Why The US Homeownership Rate Will Crash<img src="https://assets.site-static.com/userfiles/663/image/us-homeownership-rate-decline.jpg" width="880" height="587" alt="a clear picture of the future of housing, supported by facts and data" title="Why The US Homeownership Rate Is Poised To Crash" class="img_box_center" />Imagine a pill that would allow you to cheat death. Now imagine another pill that would improve your health. Pretty great huh? Sign me up! Well, the housing market has been taking those two pills for the past forty years, and unfortunately, their effects are about to wear off!
In this post, I’m going to paint a clear picture of the future of housing, supported by facts and data.
If you agree with my premise, then you’ll be forced to agree with my conclusion, and that is that home affordability is about to plummet and corporations are moving in to monopolize the ownership of homes which will result in a long-term landlord market, further separating the haves from the have nots!
So follow me through to the end, whether you watch the video or read the supporting material below it and you’ll be in a position to take advantage of the biggest change the housing market has seen since the end of World War II!
VIDEO: Homeownership To Plummet
<br /><br />Let's start the analysis of current and future conditions with a basic understanding of what "homeownership" is and is not. Common sense might lead you to expect that the homeownership rate is the percentage of adults who own their own home, but that is not the case.
The homeownership rate is a measurement prepared by the US Census Bureau that examines all single-family homes, apartments, condominiums, and housing cooperatives in order to compare the total number of owner-occupied units to the total number of units. So when you hear the term "homeownership rate," it is the measurement of all the people who live in homes they own compared to all the homes in the US.
US Homeownership History
This graph tracks more than 120 years of the US homeownership rate by decade starting in 1900.
<img src="https://assets.site-static.com/userfiles/663/image/us-homeownership-rate-august-2021.jpg" width="880" height="641" alt="Graph of US homeownership rate from 1900 to 2021" title="US Homeownership History" class="img_box_center" />
The purpose of this article is to examine US Homeownership today and to forecast its future. A quick summary of the past was pulled from the U.S. Department of Housing and Urban Development <a href="https://www.huduser.gov/periodicals/ushmc/summer94/summer94.html" title="Homeownership-Past, Present, and Future">website</a>. According to HUD, from 1890 to 1960:
The homeownership rate fluctuated in the 43- to 48-percent range. From 1890 to 1920, the homeownership rate fell as immigration and urbanization offset the rise in income. Income growth increased the homeownership rate during the 1920s, but the Depression more than wiped out this gain so that the rate had fallen to a low of 43.6 percent by 1940.
During the 1940-1960 period, the homeownership rate rose by over 18 percentage points, from 43.6 to 61.9 percent. This remarkable transformation was facilitated by higher incomes, a large percentage of households being in prime homebuying age groups, the FHA-led revolution in mortgage financing, the GI bill of rights, improved interurban transportation, and development of large-scale housing subdivisions with affordable houses.
The big takeaway is that the US homeownership rate changed significantly after World War II, from less than 50% to nearly 62%. After 1960, for the next 60 years, we've seen the US homeownership rate stabilize, from as low as 61.9% to as high as 68.1%. Currently, the US homeownership rate is 65.4% (estimated April 2021).
I believe we'll soon start a trend of a falling US homeownership rate that will eventually lead to a rate of 60% to be left behind in history, bringing back the sub-50% levels. My reasons are detailed below.<br /><br />Home Affordability Will Change The US Homeownership Rate
What many people do not realize is that home affordability today is awesome! They hear of soaring home prices and believe that home affordability is through the roof, but that is certainly not the case.
Home affordability, and how it changes, is perhaps the most important factor in how the homeownership rate will move in the coming years. By forecasting home affordability, we are also forecasting the likely change in homeownership.
This graph plots inflation-adjusted home affordability from 1991 through 2021 by using the Consumer Price Index to adjust all years' home prices back to 1991 levels and then using the historic mortgage interest rate to calculate how monthly mortgage payments compare over time.
<img src="https://assets.site-static.com/userfiles/663/image/home-affordability-inflation-adjusted-august-2021.jpg" width="880" height="641" alt="Inflation-adjusted home affordability 1991 to 2021" title="Home Affordability Will Change The US Homeownership Rate" class="img_box_center" />
The red line in the graph above plots the inflation-adjusted average monthly mortgage payment and it is clear that today's payment is lower than all previous years except 2011-2017 plus 2019. So even as home prices skyrocket, home affordability is still far below what buyers were expending in the 1990s and the 2000s, and home affordability today is only higher than the years that followed the bottom of the housing market collapse.
Home affordability will soon be challenged greatly, as both the price of homes as well as the cost of borrowing money will be rising significantly in the relatively near-term future.
Let's start with an examination of mortgage interest rates, including a forecast of what is likely to occur in the coming years.
Mortgage Interest Rates: Poised For Generational Change
According to an annual survey of recent home buyers conducted by the National Association of Realtors®, 87% of recent buyers financed their home purchase with an average 88% loan-to-value mortgage loan.
It has been my experience that most buyers purchase homes at the high-end of what lenders will allow, so the mortgage interest rate charged to buyers is highly impactful on home affordability. Let's look at why we're on the brink of a generational change in mortgage interest rates.
<img src="https://assets.site-static.com/userfiles/663/image/mortgage-interest-rates-august-2021.png" width="880" height="642" alt="Graph of more than 50 years of the average monthly 30-year fixed mortgage interest rate" title="Mortgage Interest Rates: Poised For Generational Change" class="img_box_center" />
The graph above plots each month's average 30-year fixed mortgage interest rate for the past 50+ years. The blue line shows the general decline of rates for 40 straight years.
Think about what this means. For the past 50 years, people who purchased homes were able to refinance their homes and pull out cash after five or so years. They could do this while also lowering their monthly payment! And for those that moved, they could purchase a more expensive home and keep their payment similar or lower if they used the equity they had built up for the next home.
When rates fall, home affordability rises. So we have several generations of homeowners who were able to obtain lower interest rates whenever they decided to move up to the bigger home. I'm fairly confident those days are over.
When this graph is extended over the next fifty years, I think it is highly likely that we'll see a long-term trend of rising rates. Today's buyers would be shocked to discover that the fifty-year average rate is nearly 8%.
And the forty-year average ten years ago (prior to a decade of historic low rates) was nearly 9%!
Interest rates are cyclical, and today we are at the very bottom of the low end of the cycle. Mortgage interest rates are going to return to normal, and then move above normal because that's what 800 years of interest rate history has shown always happens. This is why I'm advising buyers today to purchase as much house as they can stomach because they likely will not be in a position to move up to a larger, more expensive home with interest rates and property values rising at the same time.
How Affordability Changes As Mortage Interest Rates Change
The following tables provide a good visual of what today's median-priced homebuyer will experience over the next twenty years. It works by taking the median home price in the US today and appreciating it at a conservative growth rate each year. Under each home price is the salary required to purchase the home at the interest rate in the second column. Just for reference, the first column contains the previous year that the interest rate was the average.
<img src="https://assets.site-static.com/userfiles/663/image/salary-requirement-for-a-median-priced-home.jpg" width="880" height="641" alt="Graph shows how salary requirements change as home prices and mortgage interest rates change" title="How Much Do You Need To Earn To Buy A Median Priced Home" class="img_box_center" />
So here's how we use the table. Follow the third column from the left, under the year 2021. Today's median home price in the US is around $355K, and today's mortgage interest rate is around 2.93%, so that means the typical buyer needs a salary of around $62K to be able to buy this median-priced home.
If rates moved up 1/2%, then the salary requirement would jump 2% to over $63K. Now, say a buyer decides to wait a few years, perhaps to 2024. The median-priced home will be nearly $450K! And we expect rates to be much higher by then. Even if mortgage interest rates only move to 5%, then the required salary to get a median-priced home will be just short of $95K! Do you think the buyer waiting to buy a median-priced home will earn 53% three years from now?
Now, let's look at a table that has been created for a move-up buyer. The typical move-up buyer purchases a home 150% of their current home's value, so that is what we used to prepare this table. A buyer purchases a home today at the US median home price and then 8 years later sells the home and buys its replacement at a price 150% of the first home's value (eight years from now).
<img src="https://assets.site-static.com/userfiles/663/image/buy-sell-buy-homes-example-august-2021.jpg" width="880" height="641" alt="Table shows likely cost and interest rate for home in 10 years for today's median home buyer" title="Buy - Sell - Buy Example To Forecast Future Affordability" class="img_box_center" />
I'm not sure many buyers will be able to handle this sticker shock! The payment (PITI) on the first home, calculated using today's low mortgage interest rate, is just $1,808 each month. But with the rise in home prices (conservatively estimated) and the rise in mortgage interest rates (conservatively estimated), the monthly payment on the next home will jump 137% to $4,283 each month.
I know numbers like these are hard to believe, but the reality is that mortgage interest rates are likely to move higher faster than the table projects, and I think home prices will move higher at a faster rate too. Builders in the US have not been producing enough homes for the growing population, so the supply of homes is far too low and prices will continue higher.
Forecasting Future Mortgage Interest Rates
Forecasting the changes in the mortgage markets is highly speculative at best, but there are signs that will guide us to the changes that are coming. Today, we're going to look at how mortgage interest rates move when the Fed changes its federal funds rate.
Mortgage interest rates are not directly tied to the federal funds rate, but the graph below shows us that in the long term, there is definitely a correlation between the move the fed makes and the changes that follow in the mortgage market.
<img src="https://assets.site-static.com/userfiles/663/image/mortgage-interest-rates-vs-fed-funds-rate.jpg" width="880" height="641" alt="How mortgage interest rates move compared to the movement of the Fed Funds Rate" title="Mortgage Interest Rates And The Fed Funds Rate" class="img_box_center" />
This graph shows 50 years of average mortgage interest rates (solid blue line) and 50 years of the effective federal funds rate (solid red line). The dashed lines reveal the one-year average of each rate.
The dashed lines reveal that the mortgage market does generally follow the federal funds rate, and the median difference between those two lines is 3.15%. Simply put, if the Fed moved the fed funds rate to 1% at their next meeting, you would expect mortgage interest rates to move towards 4.15% over the next year.
Again, they are not specifically tied together, but history has shown the correlation exists. So why does this matter?
The current federal funds rate is 0.1%, but signs of inflation are very obvious and several members of the Federal Open Market Committee (FOMC) have stated that they believe it is time to raise the federal funds rate to battle inflation. When the FOMC’s statements are generally “positive” on the U.S. economy, mortgage interest rates tend to rise. Conversely, when the Fed is generally negative with its commentary, mortgage interest rates typically fall.
In a recently published opinion, one FOMC member said using the traditional model for determining the proper federal funds rate, today’s rate should be at close to 5%. If the FOMC acted on that (which they will not be doing), a federal funds rate of 5% would suggest mortgage interest rates moving above 8% over the next year. Again, that's not going to happen real soon, but with FOMC sentiments changing, we have to be expecting a rise in the federal funds rate no later than early next year. And that means we should anticipate a rise in the mortgage interest rates to follow.
If inflation starts pushing higher than 2% for an extended period of time, it will signal the beginning of the rise in mortgage interest rates that will cool demand in the housing market because home affordability will decline significantly.<br /><br />Why New Home Prices Are Moving Higher Faster
There are several reasons that new home prices will be moving higher at a faster rate than we have observed in the past. The National Association of Homebuilders claims that the lack of available lots is a big reason that more new homes are not being built.
The reality is that there had been a surplus of developed lots left over from the housing expansion stage back in 2006, and many of those lots had been foreclosed upon multiple times and thus were picked up by builders below cost. Well, those lots are about gone. That means future homes will be built on lots at the real cost of development, and that means the land underneath new homes will be more expensive. In Tallahassee, I believe it will add 15% to 20% to the overall cost of a new home (on average).
But there is a new (hidden) cost that soon will be pushing the cost of materials and labor much higher too.
<img src="https://assets.site-static.com/userfiles/663/image/new-home-price-forecast-august-2021.jpg" width="880" height="641" alt="Graphs compares the growth of the minimum wage with the growth of new home prices" title="New Home Prices Versus The Minimum Wage" class="img_box_center" />
The minimum wage in Florida is going to move higher at a faster rate than ever. By voter mandate, the Minimum Wage in Florida will move to $15 an hour over the next five years. We saw the Minimum Wage move 66% higher over the past 17 years, but now it will move 75% higher over the next five years. Take a look at the solid green line in the graph, look at how significant the growth slope is going to be changing as we move forward. This is significant!
Without even considering the temporary increases in material costs due to the COVID pandemic, we must be prepared for the cost of construction to soar due to the coming changes in the Minimum Wage.
These higher costs mean that the shortage of homes in the US will be filled with new homes that cost a lot more than did new homes in recent years. This will increase the average price of all homes at a significantly faster rate than what we've seen in the past, thus putting even more pressure on home affordability.
It won't be long until the combination of higher home prices and rising mortgage interest rates make home affordability an unattainable proposition for many people who have good credit and who would like to buy a home. And this is why I see the generational shift in the housing market occurring.
We still need more homes, no matter the cost, and therein lies the opportunity for well-capitalized entities to purchase homes for lease to those that cannot afford them. This is already begun in many areas, but we've only seen the tip of the iceberg on this issue thus far.
The Shift Has Already Begun
Real estate, and specifically the housing market, has always been a perfectly decentralized market. The majority of homes are owned by individuals, and in the past, it was rare to find a single owner with vast holdings in the housing market. But all of that is changing.
OfferPad, Zillow, Home Partners of America (17,000 homes), BlackRock (80,000 homes), and Invitation Homes, just to name a few, are gobbling up houses and even whole neighborhoods in order to lease them to people who cannot afford a home. Wall Street loves the steady rental income, and this is a rapidly growing industry that is just in its infancy.
Imagine Tallahassee (or your market area) where 25% to 50% of the homes are corporately owned and managed. Rental rates will move higher at a faster rate due to the centralized command and control of the market. People who earn below the median income level in each area will find it hard to afford to buy a home, and thus many people who would have been homeowners in the past will be tenants in the future. I truly see the American Dream being ripped away from a large portion of our population.
Go back and take a close look at the home affordability graph I showed above, and let it motivate you to go out and get as much home as you can handle today because all the signs in the market show a future will you will not be able to afford to purchase a similar home. The combination of today's relatively low home prices and historically low mortgage interest rates means that today's home affordability is better than you will see for the rest of your life!2021-08-20T02:56:00-07:002021-10-30T10:25:18-07:00Joe Manausatag:manausa.com,2012-09-20:22489Should You Wait For Home Prices To Come Down?<img src="https://assets.site-static.com/userfiles/663/image/home-prices-to-come-down.jpg" width="880" height="587" alt="You don't want to feel like a fool for buying a home right before home prices come tumbling down" title="Should You Wait For Home Prices To Come Down?" class="img_box_center" />Home prices are soaring, buyers are having to pay above most sellers' asking prices, and the housing market feels just like a feeding frenzy during Shark Week on the Discovery Channel.
You know you want to buy a home, but you also don't want to feel like a fool for buying a home right before home prices come tumbling down. So what do you do?
I have included a list of all the homes for sale in Tallahassee below, and you will find that the majority of homes below the top of the market are already under contract with buyers. The market today is as hot as a July day in Tallahassee.
Homes For Sale In Tallahassee<br /><br />History Of Home Prices
If you are somebody who is thinking about buying a home but you are waiting for home prices to come down, then this is the article for you.
Winston Churchill once wrote, "Those that fail to learn from history are doomed to repeat it." I suspect he got the idea from somebody else, but that's not the point. The point is that we can gain insight into what is going to happen in our future by studying what has occurred in our past.
So relating to real estate, if you believe home prices cannot come down, you might end up learning a tough lesson if you were to buy a home at the wrong time. And if you believe that home prices must come down, you too might learn a tough lesson by failing to buy while homes are relatively cheap.
Rather than have unfounded beliefs (in either direction), why not study the past and see what it suggests will occur moving forward? In order to gain the insight that we need, I have gathered eighty years of data on US home prices so that we can examine how home prices have risen and fallen through the years.
History Of US Home Prices
This graph plots 80 years of the average home price in the US.
<img src="https://assets.site-static.com/userfiles/663/image/home-price-change-over-the-years.png" width="880" height="641" alt="80-year history of US home prices graphed" title="History Of US Home Prices" />
The average price of homes sold in the US has risen 5.1% annually over the past eighty years. As you can see by studying the blue bars in the graph, it has not been a straight climb like the red arrow shows, rather we have seen some ups and downs over time.
In the past 80 years, average home prices have risen in 73 years while declining in just 7 years. In fact, five of the seven declining years were from 2007 through 2011, the result of many causes including significant over-building by us Home Builders.
This graph is very revealing. On average, home prices drop just one year out of every eleven, but in reality, we've seen just three periods where prices have dropped over the past eighty years. Two of the three periods were relatively insignificant (0.1% and 1.3% in singular, stand-alone years), but five of the seven were very significant and impactful.
From 1942 through 2006 (a 64-year span), home prices fell just twice, once for 1/10th of a percent, and once at 1.3%. Take that in. 62 years saw the average home price grow while just two years showed it decline.
History tells us that as a general rule, the average home price is going to rise. If we had social media from 1942 through 2006, how many "YouTube Experts" would have wrongfully called for falling home prices?
So instead of relying on the fear-mongers that get a lot of attention with their shocking headlines, whether it be about runaway prices or plummeting prices, let's evaluate current market conditions and the variables that will ultimately decide where home prices are heading.<br /><br />Supply And Demand Determine Price Changes
In all markets, from houses to pork bellies, the supply and demand relationship determines price movement. If you want a quick assessment of where prices are heading for the near future, a quick look at the supply and demand numbers will tell you what you want to know.
The following table shows the relative supply of homes for sale in Tallahassee, and it is similar to what you would find in most US housing markets, though there might be differences at higher price points. The numbers recorded are measured in "months of supply."
<img src="https://assets.site-static.com/userfiles/663/image/relative-supply-homes-for-sale-june-2021.jpg" width="677" height="641" alt="The relative supply of homes for sale in Tallahassee, Florida" title="Months Of Supply Of Homes For Sale" class="img_box_center" />
The magic number that we're looking for in the table is 6.0, which is typically regarded as a balanced market. Anything below 6 months of supply of homes is heading towards a sellers' market, and anything above 6 is heading towards a buyers' market.
The red-shaded areas and price ranges are all showing sellers' market conditions, and the bottom line for all areas of Leon County is fully shaded red, thus revealing a very strong sellers' market. This means that we expect to see home prices rise for the foreseeable future in Tallahassee (and in most other US markets too).
Market conditions won't turn around overnight, we can see it coming when these numbers start to move in opposite directions. In order to forecast those future moves, then we really must study the variables that impact both the supply and the demand for housing.
These would include population growth, mortgage interest rates, inflation, wage growth, construction costs, mortality rates, foreclosures and distressed homes, and several others though these are the ones most likely to have a significant impact on the housing market.
I have written on each of these on multiple occasions in the past few months, so I will summarize those articles (<a href="https://www.manausa.com/blog/tag/housing-market-variables/" title="Articles that discuss housing market variables">here is a reading list if you'd like more details</a>) with the following:
Homebuilders have failed to deliver homes that our growing population needs (due to many reasons like the rising cost of land and materials and labor), creating a shortage of homes for sale. This shortage has created pricing pressures. Declining mortgage interest rates have increased demand further exacerbating the supply shortage, causing a run on homes and double-digit appreciation rates. This demand will not likely cool much until mortgage interest rates rise.
Unlike 2005 when the market was rocketing forward, the supply in today's market comes from buyers moving up, over, or around. Were interest rates to spike higher killing demand, it would have a similar result in the supply, because new construction has not been a great factor. A cooling market is not going to leave us with a devastating supply imbalance that needs ten years to be consumed as we saw in 2007.
For readers who want to ask "what about foreclosures and homes in forbearance, I have covered that in numerous articles and videos. I recommend you start with <a href="https://www.manausa.com/blog/distressed-properties-july-2021/" title="loan status changes and forbearance plans">Will Distressed Properties Begin To Dominate The Housing Market Again?</a>.
My Concern For The US Housing Market
Unlike many people who provide regular written and video opinions on the US housing market, I have little concern about a bubble or falling prices in the near future. Most signs point in a different direction.
But I do have a huge concern for what I believe will be a generational change in the housing market. Affordability. Inflation.
Our population has grown and we need more homes. The new homes are costing significantly more than did the old homes. If you think that future construction costs will be lower than pre-COVID construction costs, you are among the minority (though there are some COVID-related spikes that will come back down towards pre-COVID prices).
In a future of higher prices and higher mortgage interest rates, I see a soaring home affordability concern that only wage inflation will be able to address. Right now, we are seeing huge wage inflation at the bottom of the pay scale (by voter mandate in Florida and many other states), but we'll need to see that surge throughout the other pay scale ranges before it begins to aid in the (lack of) affordability of homes.
Right now, home affordability is excellent. Only 5 of the past 30 years have been better. But when rates start to climb as a result of the Fed combatting inflation, home affordability will quickly fall to the "worst year on record." This is my greatest concern for the housing market.
Don't expect home prices to come down, rather expect to see demand plummet and the overall market will see the homeownership rate decline. Many families will simply not be able to afford a home of their own and those who today would be starter-home owners tomorrow will be tenants.
Buy Now Or Wait?
All of the housing market variables point to rising prices. Most of the economic variables seem to point to economic recovery, and thus we should have an expectation of rising mortgage interest rates when the Fed raises the federal funds rate.
Somebody contemplating buying a home should recognize that tomorrow's prices will be higher than today's prices, and he will be borrowing the money for the home at a higher mortgage interest rate than what he would have to pay today.
Buy a home now. Get as much home as you feel comfortable with because it's likely you won't' be able to afford to move up in the future. Lock in your purchase with a 30-year, fixed-rate mortgage loan. We are heading towards a time of high inflation, one great hedge is to own assets that will inflate faster than your cash.2021-07-26T02:51:00-07:002021-08-10T05:43:43-07:00Joe Manausatag:manausa.com,2012-09-20:22227Home Sales Remain Strong Through June<img src="https://assets.site-static.com/userfiles/663/image/home-sales-strong-july-2021.jpg" width="880" height="587" alt="The first half of 2021 is in the books and it's time for an updated housing market report" title="Home Sales Remain Strong Through June" class="img_box_center" />The first half of 2021 is in the books and it's time for an updated housing market report.
We start today's report by comparing the first six months of 2021 with the same months in previous years in order to identify trends in the housing market, specifically the changes in supply and the changes in demand. We'll examine current housing market conditions, mortgage interest rates, and home sales trends in an effort to give you an idea of where the market is heading as we complete the hottest months of the year.
At the end of this report, I examine home affordability today with affordability over the previous thirty years.
Let's start the report with a quick look at the current listings of homes for sale in Tallahassee. You will note that as the asking prices decline, the percentage of homes under contract goes much higher.
Homes For Sale In Tallahassee Today
The following list of homes for sale is created dynamically, updated every 15 minutes, so you can be assured that it's the best information available on Tallahassee real estate listings. I include these listings in my monthly report so that our readers can observe the record-high rate of listings already under contract with buyers.<br /><br />July Housing Market Update
Year Over Year Home Sales Grow
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 year-over-year home sales.
<img src="https://assets.site-static.com/userfiles/663/image/year-over-year-home-sales-july-2021.png" width="880" height="641" alt="Year Over Year Home Sales Report Tallahassee July 2021" title="Year Over Year Home Sales July 2021" class="img_box_center" />
The study of year-over-year home sales provides insight into the market changes by removing the impact of seasonality (the different times of the year when home sales traditionally either heat up or cool down). By only comparing the same month in separate years, we eliminate concerns that the time of year could be affecting the results. For example, we only compare February to February or June to June, thus the seasonal changes in real estate have been removed.
Year over year home sales rose 24% in June, registering the tenth-straight month of gains and eleven out of the past twelve months.
Last year, we saw home sales decline sharply in the second quarter as COVID became a fact of life in Tallahassee, and this has resulted in explosive moves higher for the months of the second quarter in 2021.
Mortgage rates fell slightly in the second quarter, though they remain slightly higher than what was available at the very beginning of the year. Today's low mortgage interest rates have buyers chomping at the bit to get into a home before rates begin to rise permanently.
Year Over Year Inventory Falls Again
The supply of homes for sale grew in the second quarter. Just as sales stalled when COVID reached Tallahassee, so too did sellers entering the market.
<img src="https://assets.site-static.com/userfiles/663/image/year-over-year-new-listings-july-2021.png" width="880" height="641" alt="Graph shows year-over-year fresh listings entering the market through June 2021" title="Year Over Year Inventory Change July 2021" class="img_box_center" />
Just as we saw in the first graph, this graph compares each month of the year with the same month from the year prior. We're looking at the change in fresh new listings entering the market, where "fresh" means we only consider homes that were not previously listed for sale.
Here, we see the year-over-year fresh listings entering the market post gains in two of the past three months (but only those two for the entire year as well). As we move further into the report, we'll see how this is impacting both sellers and buyers alike.
Year To Date Home Sales
This next graph shows the number of homes sold during the first half of each of the past 20 years.
<img src="https://assets.site-static.com/userfiles/663/image/year-to-date-home-sales-july-2021.png" width="880" height="641" alt="Year To Date Home Sales Report Tallahassee July 2021" title="Year To Date Home Sales July 2021" class="img_box_center" />
2021 has started the year strong, with the number of homes sold sitting as the third-best year ever, trailing only 2005 and 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, <a href="https://www.manausa.com/blog/housing-bubble-2021/" title="Housing Bubble 2021">click here</a> to see my report about the potential for a new housing bubble).
Year-to-date home sales show that demand is strong and growing. So now let's take a look at the supply-side of the housing market.
Year To Date Fresh Listings
This graph shows the number of fresh new listings that entered the market each month, segmented by existing homes in blue versus new construction homes in green.
<img src="https://assets.site-static.com/userfiles/663/image/fresh-new-inventory-through-july-2021.png" width="880" height="641" alt="Graph of inventory changes each month in the Tallahassee real estate market jULY 2021" title="Year To Date Fresh New Listings July 2021" class="img_box_center" />
In 2021, we have seen the fifth-fewest fresh listings for the first half of each of the past eight years.
Existing homes entering the market rank fifth of the past eight years, while new construction listings are ranked sixth. With inventory shortages being pronounced and obvious since 2016, I am hoping that fresh new construction listings will accelerate significantly in the post-COVID market.
As of right now, that has not been the case. Low new construction starts have amplified the bidding wars on the relatively few homes for sale in the market and the relative supply of homes is near an all-time low.
If you are a buyer in this market struggling to find an available home, this next graph shows what happens when demand continues to outpace supply.
Status Of Current Home Listings
This next graph shows a super-high percentage of homes for sale in Tallahassee is already under contract with buyers. Though we've seen the percentage decline slightly over the past two months, this is just due to the seasonal surge of listings we normally see in the summer, and I am concerned it will reverse and move higher at the end of the summer.
The high percentage of homes under contract 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.
<img src="https://assets.site-static.com/userfiles/663/image/listing-status-july-2021.png" width="880" height="641" alt="Status Of Current Home Listings July 2021" title="Status Of Current Home Listings In Tallahassee" class="img_box_center" />
Roughly two-thirds of the homes listed for sale right now are already under contract with buyers. The green line in the graph above shows that 65% of the current listings are already under contract, and the one-year trend of the under-contract percentage has again risen to an all-time high of more than 55%.
On average, more than one-half of all listings were under contract with buyers at any given time over the past year. So when you consider that we are dealing with the lowest inventory that I've seen in thirty years selling homes in Tallahassee, the reality is much worse, as more than half of the few listings are not really available.
We are expecting more sellers to enter the market for the next thirty days, but we're also expecting more buyers due to the seasonal changes that occur this time of year. More buyers and more sellers will not likely cause much of a dip in this ratio. And 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 1,260 homes for sale in Leon County, but only 462 of them are really available as buyers have the other 798 already under contract.
Roughly 200 of these are new construction, most of which are under contract and won't be available for many more months. This means that there are 1064 existing homes for sale 664 of them are already under contract with buyers, leaving just 400 homes for buyers who are ready to move right away.
So a buyer today has roughly 400 homes available to purchase. At this time in 2011, there were nearly four times 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 fast 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 be heartbroken. You will lose out on the home you love, only to find homes more expensive once you get your affairs together.
Smart sellers are taking cash offers (or offers with limited financing contingencies and no contingency for an appraisal), so forget about getting your dream home with a contract that asks the sellers to wait for you to find financing. Again, get your loan documents completed before looking at homes, it's the only way to entice a seller to even consider your offer.
This real estate cycle is so extreme, buyers need to understand that they are not going to be negotiating with a seller, rather they are going to be competing with other buyers for the right to buy the home. The question of what to offer begins at the asking price and moves higher for properly priced homes.
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.
So to summarize our report thus far, demand is strong and supply is insufficient, causing buyers to have to compete with each other over the few homes that are really available. The next segment of our report will examine how the supply and demand dynamic is impacting home prices and home values.<br /><br />Annual Real Estate Appreciation
A good 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.
<img src="https://assets.site-static.com/userfiles/663/image/real-estate-appreciation-rate-july-2021.png" width="880" height="641" alt="Annual Real Estate Appreciation Tallahassee Florida July 2021" title="Annual Real Estate Appreciation July 2021" class="img_box_center" />
For the first ten or more years of my career, we saw real estate appreciation average a little more than 3.25% each year. But the craziness of the housing market in the early 2000s has created chaos with values 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 the rampant appreciation that began last year has continued. In an earlier market report, I had forecast the potential for double-digit appreciation for 2021. Through the first half of the year, appreciation has reached 8.6% (an annualized rate of more than 17%).
If builders don't ramp up production for 2021, we could see existing home values rise above an alarming 20% in 2021. To put that into perspective, that means a $250K home purchased in December 2020 will be worth more than $300K at the end of December 2021!
While that might seem wonderful as most people's largest investment is in their home, you have to worry that home affordability might soon be lost for all but the wealthiest people. I, for one, do not want to see that happen.
Median Home Price
This graph shows how the median home price has changed in Tallahassee since 2003 (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 each sales price).
<img src="https://assets.site-static.com/userfiles/663/image/median-home-price-tallahassee-florida-july-2021.png" width="880" height="641" alt="Median Home Price Tallahassee Florida July 2021" title="Median Home Price July 2021" class="img_box_center" />
Take a look at the rapid rise in home prices. The median home price for existing homes is $225K, for new homes the median has shot above $320K, and overall, the median home price in Tallahassee is $240K. That means the middle of the market is 5.25% higher today than when we began the year.
You might wonder why home values are up 8.6% while home prices are up just 5.25%, and if so, nice catch! When values are moving up faster than prices, it means that buyers are getting less home for the money than when they move together or in the opposite direction.
I always remind our clients that average home prices tell you what buyers are spending while average home values tell you what sellers are getting.
Today, supply is low and demand is high, so we expect to see the median home price and the median home value rise for the foreseeable future.
The Big Issue Of Home Affordability
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 show why demand remains so strong and why buyers today need to feel a sense of urgency.
<img src="https://assets.site-static.com/userfiles/663/image/home-affordability-graph-july-2021.png" width="880" height="641" alt="Measurement of annual home affordability adjusted by inflation July 2021" title="Home Affordability July 2021 (Inflation Adjusted)" class="img_box_center" />
<a href="https://www.manausa.com/blog/forecast-for-home-affordability/" title="Our Forecast For Home Affordability Over The Next 20 Years">Home affordability</a> is going to be the greatest challenge that the housing market faces over the next ten or more years. What most people do not understand is that today's homes are nearly more affordable than they have been during all of my previous thirty years in the real estate industry. Let me show you what I mean.
This graph was created by adjusting home prices over the past thirty years to 1991 prices. I simply took the average home price each year, divided it by the Consumer Price Index for that year, and then multiplied by 100. This calculation created the blue field in the graph above, where each year's home price was adjusted to 1991 home prices.
Then, I used the adjusted home prices and combined them with historical mortgage interest rates to determine the average monthly mortgage payment for each year. This payment is plotted in red and measured on the right vertical axis. It is this red payment line that we use in the discussion of home affordability, and homes gain in affordability as the payment lowers, while the opposite is true when the payment rises.
When we adjust for inflation, we find that 2012 was the most affordable year for the average home in Tallahassee, with the average monthly mortgage payment just $427 dollars (that's 1991 dollars though). The opposite end of the spectrum was in 2006 when the average monthly mortgage payment was $823, again, adjusted to 1991 dollars.
So how affordable is today's average home? It's more affordable now than was the average home in 24 of the past 30 years! In fact, today's average home is more affordable than the average home in all of the 1990s decade!
Fortunately for buyers, interest rates are still low. The inflation-adjusted payments that these low rates produce are still lower than the majority of recent years, but as interest rates rise, so too will payments and we'll see home affordability erode.
The big takeaway from this graph is that when we adjust for inflation, we realize that today's home affordability is two things:
Home affordability is excellent right now
Home affordability is likely lower today than it will be for the rest of your life!
That's right, I think we hit the bottom for home affordability in 2012, and it will take a significant inflationary period for future dollars to come down to today's $507 monthly mortgage payment adjusted to 1991 dollars. There are too many factors working to erode home affordability, led by rising mortgage interest rates (see how this will be a generational shift in housing) and the rising cost of new construction. Homes will be getting more expensive, and so too will be the money used to finance home purchases. This double-whammy will take home affordability to a level that will make homeownership much tougher than I have seen during my career.
The Take Away From This Month's Market Report
We are in the midst of the strongest sellers' market I have ever seen, with demand far exceeding the existing supply of homes at all but the very top prices in the market. If you have a home to sell and market it correctly, you will get offers in the first days your home is available to be seen. Ensure your broker uses an <a href="https://www.manausa.com/how-to-sell-your-house/" title="Sell Home 2021">omnichannel marketing plan with a prolonged pre-marketing period</a> and you'll be able to choose from the multiple offers that you receive.
When mortgage interest rates rise, it will have an immediate and significant impact on demand if rates rise too quickly.
The luxury homes market could very well go dormant, as it has been super-hot over the past few years and has been the hottest in 2021. The top-end of the market is most susceptible to collapse due to rising mortgage interest rates, so high-end sellers need to "make hay while the sun is shining!).
So long as rates rise gradually, we'll see demand cool in the market, but not in an overly 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 once the Fed gains confidence in the economy, but forecasting the future change of mortgage interest rates is highly speculative.
Today's real estate 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 financed at a very low mortgage interest rate!2021-07-12T02:50:00-07:002021-07-20T06:24:13-07:00Joe Manausatag:manausa.com,2012-09-20:22008Tallahassee Builders Association Real Estate Outlook 2021Each year I am invited to speak to the Tallahassee Builders Association to share my outlook for home sales in Tallahassee. I discuss real estate market activity in Tallahassee and the US in order to provide an analysis of the trends that are influencing current market behaviors.
This year's meeting was held at the Capital City County Club on Thursday, June 24th. I have shared a video of my presentation below. If you have concerns or questions about how the housing market is evolving, I strongly encourage you to watch the presentation from start to finish.
Real Estate Outlook
The topics in the video include:
Housing Market Activity
A Study of Supply And Demand
The US Housing Market
Loans In Foreclosure & Forbearance
Is Today's Market Like 2005? 2008?
How To Listen To The Market
How Builders Should Proceed Today
2021-06-28T05:30:00-07:002021-07-18T10:16:22-07:00Joe Manausatag:manausa.com,2012-09-20:21838Real Estate Supply And Demand Update June 2021<img src="https://assets.site-static.com/userfiles/663/image/2inventory-real-estate-supply-and-demand-update-june-2021.jpg" alt="Real estate supply report Tallahassee April 2021" title="New Listings Report June 2021" class="img_box_center" />
The hot summer months are here, and that means we expect to see changes in the supply and demand for homes in Tallahassee. The summer of 2021 has brought us some interesting changes.
Today's report uses data from the Tallahassee real estate market, but from what I'm reading and hearing from agents around the country, our report could easily apply to those market areas too. If you asked the top agents around the country what they'd like to see in the near future, we'd all tell you the same thing. We need more homes!
Today’s report dissects the supply-side of the housing market, examining what’s coming in, what's under contract, and what present levels mean for home values and buying a home today.
I've included a list of the current active listings in Tallahassee, sorted by price from high to low. As you scroll down towards lower-priced homes, take note of just how many of them are already under contract with buyers!
Active Listings In Tallahassee<br /><br />Video Housing Market Report
Some Good News For Buyers
This graph shows the status of the current homes for sale.
<img src="https://assets.site-static.com/userfiles/663/image/status-homes-for-sale-june-2021.jpg" width="880" height="641" alt="Graph shows the status of active listings in the Tallahassee MLS" title="Status Of Active Listings in Tallahassee April 2021" class="img_box_center" />
This graph allows us to examine all the homes currently listed for sale in Tallahassee, grouped into two different stages. Homes for sale that are already under contract with buyers are shown in blue, while those for sale not yet under contract with buyers are shown in red.
There is a small trickle of good news here to see. Notice how the green line has fallen from nearly 70% down to 65%. This tells us that when buyers search for homes, fewer listings have contracts on them than what we recorded in the previous two months. MORE homes without contracts are out there for buyers.
Unfortunately, this good news comes with an asterisk. First, the months of April and May last year were heavily impacted by COVID entering our market, so we saw listings unseasonably low in those two months. The fact that we saw more this year is not surprising, and this little spike of new listings has created more opportunities for buyers than they've seen in the past 60 days.
When we look at the big picture of the graph, we can understand how things are so different today than they were ten years ago. This is how the market has gone from a strong buyers' market to a strong sellers' market.
From left to right, look at how the percentage of homes under contract has reversed. On the left side of the graph, the height of the red bars was about four times the height of the blues, meaning there were far more homes for sale NOT under contract than there were homes under contract with buyers.
Right now, an amazing 65% of all current listings on the market are already under contract with buyers, meaning that today, nearly two out of every three active listings have contracts today versus 41% just one year ago.
Buyers must understand that when they go online and look at homes for sale, most of the homes they see are not really available, as other buyers have them secured with contracts. I can't tell you how many times a buyer calls us to go see a home they found on Zillow and we have to tell them it has already been put under contract. This is why we recommend you use our property search tool, it updates every 15 minutes and is the best source of current listing statuses on homes for sale in Tallahassee.
As I have been saying for years, the supply of homes for sale is far too low for buyers to be able to casually shop for a home. The situation has improved slightly for the time being, so if you are a buyer in the market, you might want to get aggressive right now before the rest of the market responds.
The dashed green line plots the 12-month average of the “under-contract” trend which has now exceeded 50%. We had never seen this trend hit 40% until last year, and now it is exploding through the roof. This means that over the past twelve months, more than one-half of all listed properties were under contract at any given time. So even as the percentage dropped these past two months, when compared to a year ago, things have actually gotten worse.
Let’s take an in-depth look at the supply side of the housing market and examine exactly what's happening that is causing the decline in the availability of homes for sale.
Fresh Listing Year Over Year Report
For two consecutive months, the number of fresh listings entering the market has risen. Again, this is less due to a surge of new listings and more related to the COVID impact in April and May of last year.
<img src="https://assets.site-static.com/userfiles/663/image/year-over-year-fresh-listings-june-2021.png" width="880" height="641" alt="Graph of year over year fresh new listings in Tallahassee" title="Year Over Year New Listings June 2021" class="img_box_center" />
The graph above shows a comparison of how each month fared (percentage-wise) compared to the same month in the prior year for fresh new listings entering the MLS.
I use the term “fresh” to describe homes listed for sale that were not previously listed. These are homes that are truly new to the market, not merely old inventory that was canceled and relisted by the agent or a new agent.
2021 has started off with nearly 19% fewer fresh existing listings than what entered the market in the first quarter of last year, so we'll need to see a lot more green bars when we review this graph in the future. Of course, if you are a home seller, the low supply of homes does make it easier for you to get top dollar when selling your home.
From a seasonality standpoint, I am expecting a "normal" Summer in 2021, where most listings enter the market now through the end of Summer. Last year produced very different results than what we normally see. With COVID impacting 2nd-quarter listings, we are now enjoying a reversal in the year-over-year trend and I believe we'll continue to do so when we next produce an inventory report.<br /><br />Slight Rise In Fresh New Listings
While the last graph showed a month-to-month comparison of fresh new listings, this one shows fresh listings of existing homes in the first five months of each year.
We see that the number of fresh (existing home) listings has risen 4% in the first five months when compared to the same five months last year. So how does 2021 compare with the previous 7 years? 2021 now ranks fifth of the 7 prior years when ranking years by the number of fresh new listings entering the market.
<img src="https://assets.site-static.com/userfiles/663/image/fresh-new-inventory-6-2021.png" width="880" height="641" alt="graph shows the number of fresh existing homes listed for sale" title="Fresh Existing Listings In Tallahassee June 2021" class="img_box_center" />
The housing market started the year with too few homes for sale, so the small 4% rise in fresh existing home listings, coupled with heightened demand, has pushed prices higher and has accelerated pent-up demand for homes.
You might believe this is "good news" for sellers as their homes are now worth more, but you also have to remember that most sellers are going to be buying another home in the same market (with the same soaring prices and the same lack of inventory).
Of course, the existing home sales market does not stand alone. We also need to examine what the home builders have been doing.
Further Decline In Fresh New Construction Homes
Similar to the previous graph that showed fresh listings for the existing homes market, this graph shows freshly listed new construction homes.
<img src="https://assets.site-static.com/userfiles/663/image/fresh-new-construction-june-2021.png" width="880" height="641" alt="The number of new construction homes listed for sale in Tallahassee over time" title="Fresh New Construction Listings In Tallahassee June 2021" class="img_box_center" />
The number of new construction listings entering the market remains far behind what we saw last year. The 177 new construction listings is just half of the 347 new construction listings created in 2020. This will not do!. We need local builders to be producing more homes.
I will be speaking to the Tallahassee Builders Association at their general membership meeting next week, and I will be sure to cover inventory levels in great detail!
With home builders producing homes at a slower rate, rapid appreciation has taken over the housing market. Last year's appreciation of 9.3% was nearly triple what we would expect in an average year, and this year's rate currently is annualized at more than 13%. As I have warned in previous reports, home values could very well surpass 20% growth this year.
New Construction Versus Existing Home Sales
This graph plots new home construction sales versus existing home sales annually from January 1991 through April 2021. The number of existing homes sold is shown in blue, while the number of new homes sold is shown in red. The gray line plots the new construction percentage share, while the dashed gray line plots its ten-year average.
<img src="https://assets.site-static.com/userfiles/663/image/new-versus-existing-home-sales-june-2021.png" width="880" height="641" alt="New construction home sales versus existing home sales June 2021" title="New Versus Existing Home Sales" />
Back in the 1990s, builders were bringing more than 1,100 new homes per year to the market. In the next decade, the average was over 1,300 homes. The last decade saw that average decline to 434 homes per year.
The decline in new construction was needed in 2007, as the market was grossly over-supplied and required time to consume all the extra homes. That correction was completed in 2016, so we needed "normal" building operations to commence.
With today's relative supply of homes for sale sitting at three months of supply, our inventory could easily be doubled, so builders today can comfortably permit another 1,000 homes on top of what is already permitted. You have to remember, while demand is high, it has been stifled by a lack of inventory, so having more homes in the past would have resulted in more sales.
Slow production means that builders missed an opportunity to sell an additional several thousand homes over the past five years. The void that these missing new construction homes did not fill has created a lopsided market with home values going out of control.
Now that we've covered existing and new construction homes separately, let's examine the global view of the supply side of our market, where we combine new homes with used homes which produces the following graph detailing the total number of fresh new listings that have entered the market through May.
New Construction And New Existing Listings
This graph reveals that the combination of builder homes and existing homes makes 2021 the second-leanest year (of the past 8 years) for new inventory. 2021 has surpassed only 2015 when the market was still slightly over-supplied with homes and did not need new listings. Remember, today's sky-high demand has created optimal market conditions for sellers, so there is no reason for incoming listings to be so low.
<img src="https://assets.site-static.com/userfiles/663/image/all-fresh-inventory-6-2021.png" width="880" height="641" alt="Tallahassee real estate market new listings report" title="Fresh New Listings June 2021" class="img_box_center" />
Of course, with the influx of new homes dropping, the relative supply of homes for sale has fallen even lower. So what does that mean?
It means tough sledding for buyers. As the hottest months of buyer activity are upon us, we find the inventory far too low to satisfy summer seasonal demand. So let's make this simple. Supply is low, demand is high, so home prices are going through the roof.
Shadow Inventory Has Been Consumed
The shadow inventory of homes that we identified so long ago has been reduced to nothing.
<img src="https://assets.site-static.com/userfiles/663/image/relisted-homes-for-sale-june-2021.png" width="880" height="641" alt="Stale listings re-entering the housing market with a new real estate broker June 2021" title="Stale Real Estate Listings June 2021" class="img_box_center" />
The graph above shows the stale listings coming back into the market each year in the first two months. "Stale" listings are those that were recently listed with another broker and failed to sell. Now the sellers are returning to the market with new brokers.
The 168 stale listings that have entered the market through May in 2021 are 67% fewer than the 507 stale listings that entered the market in the first five months of 2015, and 31% fewer than what we reported last year. The shadow inventory never really goes away, but it's as small as we've seen it since the market crash of 2006.
Months Of Supply Of Homes
This table measures the supply of homes for sale, relative to the current rate of demand. The resulting number for each area and the price range is measured in "months of supply," and what makes the market balanced is a measure of 6.0.
Historically, a market with six months of supply has produced steady home sales and an appreciation rate just over 3%. When the relative supply drops below 6 months of supply, we call this a seller's market as there are more buyers than sellers. When the numbers rise above 6, we refer to that as a buyer's market, as there are more sellers than buyers. Red shaded areas reveal a seller's market condition. Orange areas remain in a buyers' market, while the few white shaded areas are fairly balanced.
<img src="https://assets.site-static.com/userfiles/663/image/relative-supply-homes-for-sale-june-2021.jpg" width="677" height="641" alt=" the supply of homes for sale, relative to the current rate of demand in June 2021" title="Relative Supply Of Homes For Sale June 2021" class="img_box_center" />
Long-time readers of the Tallahassee real estate blog might have noticed that I have finally expanded this table. It used to top-out at $600K. When I first started publishing this data 15 years ago, less than 1% of the market sold at a price above $600K. but times change. The table now shows home price categories in $50,000 increments up to $1M.
The table clearly shows that the supply of homes for sale, relative to the current hot rate of demand, remains near a record low. With the decline of fresh new listings combined with the growth of the buyer pool, the months of supply of homes for sale is terribly low. This table shows you why 65% of our current listings are already under contract with buyers.
Right now, the overall market below $800K is facing strong sellers' market conditions. There are areas and price ranges on the west side of town down to about $300,000 that remain in a buyers' market, and everywhere homes priced above $800,000 remain in a glutted buyers' market. The longer that low mortgage interest rates remain, the more we'll see the red areas move higher.
For every buyer that closed on a home in May, there was more than one buyer that missed out on the chance to buy a home. The closings could have been more than double the rate closed had there been more available listings.
We need builders to step up and produce inventory in the areas and price ranges shaded in red if they are capable. Obviously, we're not going to see a builder bring in new units under $100K in NE Tallahassee, but there are a lot of red-shaded areas in our table that should be pursued.
If I were a builder and wanted to ensure that I did not build homes that the market does not need, I would look at the red-shaded areas with a value below 5 months of supply. The market is demanding these homes, why not build and sell them?
If you are a local home builder who would like analytical guidance on where and what to build, I’m happy to help, just give me a call.
For non-builders, you should know that this is the hottest seller's market ever, so if you've been thinking about moving, it's time to act.
Right now, mortgage interest rates are low and you have sky-high demand for your home. Mortgage interest rates have fallen again, but they have moved up from a bottom that formed many months ago. Rising rates will eventually reduce demand, resulting in fewer buyers for your home.
Rising mortgage interest rates will not likely reduce the value of your home any time soon, but the rising cost of borrowing money will increase your monthly payment on the home you buy next.
If you plan on buying a home after you sell your current one, take advantage of low mortgage interest rates, or just take advantage of the strong demand that these low rates have created.
Don't be the one among your group of friends who in the future says, "you know, I should have listened to Joe and taken advantage of those mortgage interest rates back in 2021 when they were so low!"2021-06-14T02:51:00-07:002021-07-26T03:16:46-07:00Joe Manausatag:manausa.com,2012-09-20:18510Pending Home Sale Report May 2021<a href="https://www.manausa.com/property/3064-st-andrews-way-tallahassee-fl-32312-1305/pid-17956890/" target="_blank"><img src="https://assets.site-static.com/userfiles/663/image/pending-home-sale-report-may-2021-2.jpg" width="880" height="587" alt="A Pending Home Sales Report is a leading indicator of home sales, meaning it gives you earlier insight into housing market activity than you could gain by studying home sales" title="Pending Home Sales Report May 2021" class="img_box_center" /></a>
The May Pending Home Sales Report is here, and it holds the answers to what is going on today in the Tallahassee real estate market. As a leading indicator of home sales, the Pending Home Sales Report provides an early insight into housing market activity.
When you couple what you can learn by studying new contracts with a review of detailed supply and demand numbers, you end up with the best understanding of current activity in the housing market.
Today's report is a comprehensive review of new contracts and it concludes with an accurate forecast of the coming months in the Tallahassee real estate market.
First, check out the homes for sale in Tallahassee and notice how many of them are already "contract pending" (especially after you scroll past the luxury homes).
Homes For Sale In Tallahassee<br /><br />Pending Home Sales Report
New Contracts In The Real Estate Market
This graph plots the number of home sales each month, organized by the date the contracts were written. This is important to note, as most graphs that I publish are based upon sales closing dates, not contract dates. As these contracts await closing, you must understand that some will fall out, thus recent months will adjust as we move forward whereas further past months are pretty much set for good.
<img src="https://assets.site-static.com/userfiles/663/image/pending-real-estate-contracts-may-21.png" width="880" height="641" alt="Graph shows the homes sold and under-contract in May 2021" title="Graph Of Pending Home Sales May 2021" class="img_box_center" />
The number of homes that were put under contract each month are color-coded, with the blue bars showing 2019, the gray bars showing 2020, and the red bars showing 2021 contracts.
Contracts have been higher all year, with April contracts soaring to the highest level we've seen in more than 14 years. The number of contracts written through the 18th of May is already 26% more than those written through all of May of last year, and we still have the final week of May to go!
Again, not all of these new contracts will close, so it will take some time to get an accurate evaluation of the market today versus the market at this time in previous years, but I think it is clear that activity in 2021 is far past that of the recent two years.
Rising Demand For Houses
Through all of our inventory reports over the past few years, I have pointed out that we need more homes. We need existing sellers to put their homes on the market, but more importantly, we need builders to deliver additional homes to compensate for the lack of new construction over the past 6 years.
Builder production has dropped significantly in the first five months of 2021, and May is poised to post the worst month in the past several years.
<img src="https://assets.site-static.com/userfiles/663/image/new-construction-versus-existing-contracts-may-21.jpg" width="880" height="641" alt="Graph of new versus existing pending home sales May 2021" title="New Contracts By Type May 2021" class="img_box_center" />
The blue bars measure existing home contracts, both pending and closed, by the date the contracts were written while the red measures the same for new home construction.
The red triangles report the percentage of contracts written each month that were new construction, and right now May is reporting about 5% new. We need to see new construction push closer to 20% or more for at least a year or two, so the 5% number is just not getting it done.
Last year, just over 12% of the contracts written were for new homes, but the trend for new homes this year has dropped to about 10%. As of right now, 211 new construction homes have gone under contract in 2021 versus the 209 that were written through all of May in 2020, but we still have just over a week left in May.
So the number of new homes put under contract this year is about the same as last year, but the existing homes have been flying off the shelf (at soaring prices). Builders missed a huge opportunity to sell a lot of homes and to help keep prices in check.
In the 1990s, it was not uncommon for 20% of all home sales to be new construction, and back then we did not have an inventory shortage like we do today. Builders today could quadruple production without the risk of creating an oversupply in the market, so long as they pay attention to the areas and price ranges in which they build.
Consider this my continuing plea to all local homebuilders, we need more houses! If you want to know why that I believe builders are not building today, you should check my recent video on the US housing market below.
New Home Construction Report
Have Home Prices Stopped Moving Higher?
In this next graph, I calculated the average price of homes under contract in 2021 each month and compared it with the same months in 2020. Look what's happening in May!
<img src="https://assets.site-static.com/userfiles/663/image/pending-home-sales-prices-may-21.png" width="880" height="641" alt="Graph shows the price of homes sold and under contract May 2021" title="Graph Of Pending Home Sales Average Prices May 2021" class="img_box_center" />
Buyers in May have been spending nearly the exact amount that May buyers were spending in 2020.
This is a huge difference from what we saw in the four months earlier this year. In fact, the average home contract price in April was up a whopping 13%, and the first four months averaged more than 9% higher than last year, so a zero really stands out.
Supply and demand determine price movement, and the lack of inventory means that we should expect prices to continue higher, but for some reason, that has not been the case this month. Before we start jumping to conclusions, let's take a look at the average contract value each month.<br /><br />Real Estate Appreciation
Similar to the previous graph which tracked home prices, this graph tracks the average home value in 2021 each month and compares it with the same months in 2020. Prices are what buyers are spending, whereas values are what sellers are getting and is used to measure appreciation in the housing market.
<img src="https://assets.site-static.com/userfiles/663/image/pending-home-sales-values-may-21.png" width="880" height="641" alt="Graph shows the value of homes sold and under contract May 2021" title="Graph Of Pending Home Sales Average Values May 2021" class="img_box_center" />
The graph shows that the appreciation rate for the first four months in 2021 averaged 10%, but that average has slowed to just below 5% in May. Overall through the preparation of this report, the average appreciation rate is roughly 9%.
So prices in May have not moved, but values have gone higher. This simply means that smaller homes are selling in May (when compared to May of last year). For our viewers who were not paying attention to the housing market in May of 2020, it was heavily influenced by COVID and far fewer homes sold than in the prior year.
We will have to keep a close eye on this development, as it could suggest that the high end of the housing market is cooling off. This would bring down the average sales price, yet still allow for appreciation across the lower 90% of the market.
As reported in numerous other market updates, we continue to see low inventory levels in most areas and price ranges below $600K, and this is the biggest contributor to the accelerated appreciation rate. Despite the decline in May, the appreciation rate is still roughly three times the historic norm, and low inventories levels could make this worse.
Now is a great time to sell a home, as buyers want to take advantage of historic low mortgage interest rates before they go away.
Just How Active Are Homebuyers?
This graph identifies when the current pending and closed contracts were written, with closed contracts shown in blue and pending contracts shown in red. We do this to identify the highest buyer-activity periods and to evaluate the health of the pipeline.
<img src="https://assets.site-static.com/userfiles/663/image/pending-home-sales-activity-may-21.png" width="880" height="641" alt="Graph shows the status of homes sold and under contract March 2021" title="Graph Of Pending Home Sales Status Dates March 2021" class="img_box_center" />
By pipeline, I mean the pending home sales and how they are distributed. Since the typical contract closes in 30 to 45 days, we have to be concerned with the number of contracts that appear in our report that are older than 45 days. Currently, about 33% of contracts are older than 45 days, which is better than what we measured the last time we published a Pending Home Sales Report. Currently, less than 6% of pending contracts in our MLS were written before this year.
Right now, the oldest pending home sale goes back to September of 2017, which is likely an MLS maintenance issue that needs to be removed. There are an additional 6 pending contracts that are more than a year old and are likely bogus as well.
Currently, there are 836 Tallahassee homes for sale in the MLS that are under contract with buyers (pending contracts). This represents a growth of nearly 17% since our last Pending Home Sales Report.
This is a normal seasonal move from what we historically see as the market has moved into the strong summer months. What is not normal is the percentage of homes listed that are already under contract with buyers. Specifically, the number of contracts compared to the overall pool of listings is far higher than we would seasonably experience, so sales are good but inventories are far too low.
It's important to understand what this means. Yes, demand has grown about 17% from last month, at a time of year where we expect to see demand grow. The limited inventory of homes for sale means that relative demand (demand relative to the current supply of homes) is exploding.
Now, let me repeat something I have been saying for more than six months, and it continues to be true. Buyers are wanting to take advantage of low mortgage interest rates, so now is the best time to sell a home that I have seen in my 30 years selling homes in Tallahassee.
How April Compared To Last April
The year-over-year home sales graph below has been set up in a different fashion than all previous graphs in this report.
Note that this one shows all homes sold segmented by the date of closing, while the past graphs were assembled based upon contract dates. I include this and the following graph in the pending home sales report as a bridge to our other market reports and videos where closed sales dates are used to create the graphs.
<img src="https://assets.site-static.com/userfiles/663/image/year-over-year-home-sales-pending-may-21.png" width="880" height="641" alt="Year over year home sales surge higher in May 2021" title="Year Over Year Home Sales May 2021" class="img_box_center" />
Nine of the past ten months have posted gains over the same months in the year prior, including all of the past eight months. In April, the market was up 22% over last April, but much of this has to do with the fact that COVID was negatively impacting sales a year ago. It's too early to call May, but I suspect we'll have our nineth straight months of gains.
<img src="https://assets.site-static.com/userfiles/663/image/year-to-date-home-sales-may-21.png" width="880" height="641" alt="Annual home sales in Tallahassee Through April 2021" title="Annual Home Sales Tallahassee (May 2021)" class="img_box_center" />
So how strong were the first four months of 2021? The graph above shows that it was the third-best start of the year on record, falling behind only 2005 and 2006 when inorganic demand pushed the market to unsustainable highs.
So should we be worried about the sustainability of the current market?
In short, yes and no. Yes, we need to be concerned about how the market will cool when mortgage interest rates rise, but no, the number of sales occurring right now is very much an acceptable level when you consider the population growth in Tallahassee since the market peaked 15 years ago. This pretty much mirrors the US housing market (you can view a <a href="https://youtu.be/j-RbuNo-4Fc" title="Housing Market 2021">comprehensive examination of the state of the US housing market</a> on our Youtube Channel).
As an over-simplification, we are bigger now so we should expect more buyers in the market. Additionally, we are not seeing the signs of a housing bubble like we did in 2005, where inventory levels started to rise. Today, inventory levels are falling, a sign that more homes are needed.
Homeowners who have been considering a move need to take note. Current conditions are the best I've ever seen for getting top dollar for your home while also selling it within a predictable time schedule.
I am confident that the seller's market conditions will continue for the foreseeable future, but I do believe rising mortgage interest rates will eventually reduce the advantage that current home sellers enjoy.
Anybody who studies interest rate history will tell you that mortgage interest rates are going to rise. Nobody knows when, but certainly, rates will not stay this low forever. When mortgage interest rates do rise, demand at the top of the market will erode significantly and decline throughout the lower price ranges.
If you know you want to move, you should strongly consider doing so immediately while both inventories and mortgage interest rates are each working to your advantage.
Regardless of what you decide, we'll be here to keep you up to date on the pending home sales in the Tallahassee real estate market.2021-05-24T02:51:00-07:002021-06-16T00:47:35-07:00Joe Manausatag:manausa.com,2012-09-20:18167How Is The Housing Market In May 2021?<img src="https://assets.site-static.com/userfiles/663/image/how-is-the-housing-market-may-2021.jpg" width="880" height="587" alt="a paradigm shift in the market that has changed how homeowners should go about selling their homes and buying their next ones" title="Paradigm Shift In The Housing Market" class="img_box_center" />Are you wondering how the housing market is faring through mid-May in 2021? If so, today's real estate market update will be perfect for you.
Through the use of five graphs and a table, I will walk you through current housing market conditions and reveal to you exactly what you will encounter if you were to sell and/or buy a home today.
The analysis includes year-over-year and year-to-date comparisons, mortgage interest rates plus the months of supply of homes for sale, and concludes with a paradigm shift in the market that has changed how homeowners should go about selling their homes and buying their next ones.
First, we start with a list of the current homes for sale in Tallahassee, and you should take note of how many of them are already under contract with buyers.
Homes For Sale In Tallahassee
The following dynamic list of homes for sale is updated every fifteen minutes, so it is the most accurate source of listings in the Tallahassee real estate market.<br /><br />The New Paradigm For Home Sellers
To understand the paradigm shift in the housing market, you first have to understand the conditions that have led to this change. We'll start with activity in the market and work towards revealing an understanding of the overall conditions today.
Year-Over-Year Home Sales
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 comparisons provide insight into the market changes by removing the seasonal changes in the market. For example, we only compare April to April or August to August, so the time of year fluctuations are not a factor in the changes that we find.
<img src="https://assets.site-static.com/userfiles/663/image/year-over-year-home-sales-may-2021.png" width="732" height="648" alt="Graph shows year over year home sales in Tallahassee through April 2021" title="Year Over Year Home Sales May 2021" class="img_box_center" />
Year over year home sales rose 22% in April, registering the eighth-straight month of gains and a growth streak in nine out of the past ten months. Considering how COVID was sweeping through Tallahassee at this time last year, I expect to see the streak continue in May and June at least.
Year To Date Home Sales
The next graph in our report measures the total number of home sales in Tallahassee from January through April of each year. We call this the "year-to-date" home sales report, and it lets us know how the current year's market compares with those from the past.
<img src="https://assets.site-static.com/userfiles/663/image/year-to-date-home-sales-may-2021.jpg" width="770" height="685" alt="Graph shows year to date home sales in Tallahassee through April 2021" title="Year To Date Home Sales May 2021" class="img_box_center" />
The first thing that grabs my eye is that the market is very strong in 2021, as there have been 14% more homes sold through April in 2021 than there were through April in 2020. Following the dashed line from right to left shows that the current rate of sales makes 2021 (through April) the third-best year on record, and very close to #2 (2005).
The biggest difference that I am seeing on the streets today versus what I observed in 2005 is the number of speculators in the market. Back in 2005, many baby boomers had recently pulled their money out of the stock market and were buying real estate to flip, often buying new construction homes and selling them right away for a profit. This increased inorganic demand only increased the pace of new construction, and when homes could no longer be flipped for a profit, we saw inventory stockpile to very unhealthy levels that resulted in a housing bubble.
The majority of today's buyers are organic; they are buying the home for their personal use. This means that when demand declines in the future, it won't leave the market flush with supply as we saw in 2006. So it was investors who created the crazy demand nearly 20 years ago, but something different is fueling demand today.
In the next section, we'll explore the primary driver of the demand in the market.<br /><br />Low Mortgage Interest Rates
Demand is very high due to the excellent home affordability that is the result of historic low mortgage interest rates.
<img src="https://assets.site-static.com/userfiles/663/image/mortgage-interest-rates-may-2021.jpg" width="880" height="642" alt="Graph shows mortgage interest rates in Tallahassee through April 2021" title="Mortgage Interest Rates May 2021" class="img_box_center" />
With the economy still recovering from COVID, it would not surprise me to see these low rates continue until some real progress is made in terms of unemployment and GDP growth, but you just have to know that there is too much historic proof that interest rates go through cycles and this cycle has run a long time.
When I started my career in real estate (1991), the ten-year average for mortgage interest rates was more than 12%. This means that the typical homeowner was paying more than 4 times the interest that today’s homeowners are paying.
FOUR TIMES! Take that for perspective, money is VERY cheap today and it is helping buyers purchase more home for the money. There are some who think that we are now in a new age where interest rates will be low forever, but they have not done their homework.
If you think that times have changed and that historic norms won’t return, I urge you to read “<a href="https://amzn.to/3tVoKeC" title="Historic Interest Rates">This Time Is Different: Eight Centuries of Financial Folly</a>,” you can find it on Amazon by clicking the link. The book explains how many smart people over the past 800 years (wrongly) concluded that the cycles were no longer in place.
Supply And Demand For Homes Remains Imbalanced
The inventory of homes for sale in Tallahassee has gone from far too low to even lower. To say that there are not enough homes for sale is a gross understatement!
<img src="https://assets.site-static.com/userfiles/663/image/housing-market-activity-report-may-2021.jpg" width="880" height="641" alt="Graph shows the supply and demand for homes in Tallahassee through April 2021" title="Housing Market Activity Report May 2021" class="img_box_center" />
This graph measures the relative inventory of homes for sale, meaning the current supply of homes relative to the current rate of demand, expressed in months of supply.
One interpretation is that the current 3 months of supply of homes for sale is only enough to satisfy a quarter of the homebuyers for the next 12 months. Typically, we like to see 6.0 months of supply, which we refer to as market equilibrium (represented by the gold band in the graph).
When relative supply exceeds 6.0 months, we call this a buyers’ market. When relative supply falls below 6.0 months, we refer to this as a sellers’ market. What you are viewing here is a sellers' market for the ages!
Months Of Supply Of Homes
This table shows the non-seasonal relative supply of homes for sale in Tallahassee by area and price range, meaning the average relative supply over the past twelve months.
<img src="https://assets.site-static.com/userfiles/663/image/months-supply-of-homes-may-2021.jpg" width="523" height="406" alt="Table shows months of supply of homes in Tallahassee through April 2021" title="Months' Supply Of Homes May 2021" class="img_box_center" />
Areas shaded in red reveal severe sellers’ market conditions where more inventory is severely needed. Areas shaded in orange are severe buyers’ markets where more buyers are needed (and we have all the supply we need for quite some time). Unshaded areas are in equilibrium, where neither sellers nor buyers have an advantage in the market.
The bottom line shows overall conditions for each area, with the entirety of Leon County experiencing severe sellers' market conditions. The right column shows that the overall market at prices below $550,000 also exists in a sellers' market.
Today's Housing Market Conditions
The final graph in today's report shows us visually what it is like trying to buy or sell a home in Tallahassee today. It shows the status of all listed properties with blue lines measuring the listed homes that are under contract, while the red lines show listings that are still available. The green line reports the percentage of current listings that are under contract with buyers.
<img src="https://assets.site-static.com/userfiles/663/image/homes-under-contract-may-2021.jpg" width="880" height="641" alt="Graph shows the percentage of listed homes that are under contract with buyers" title="Status Of Homes For Sale May 2021" class="img_box_center" />
The supply of homes is woefully short of meeting the current demand from buyers, thus the majority of homes for sale are already under contract with buyers.
70% of active listings have contracts with buyers versus just 40% one year ago. This means that when buyers go online and look at homes for sale, 7 out of every 10 listings are not really available. The supply of homes for sale is far too low for buyers to be able to casually shop for a home. And the situation is getting worse, not better.
The dashed green line plots the 12 - month average of the “under-contract” trend, and we’ve now seen it exceed 50%. We had never seen this trend hit 40% until last year, and now it is exploding through the roof.
As crazy as it sounds, I think next month's report will show even a higher percentage of homes under contract. This is why there are bidding wars among buyers for most homes when they hit the market, and it is causing a fairly new dynamic to form in the market.
Historically, it was fairly normal for us to advise sellers to wait until their home was under contract before they went under contract to buy their next home. If they needed to sell their home as a condition to purchase, they really had no other choice.
But today, we have sellers not wanting to list their home until they first get the next one under contract, because they are concerned they will sell their home and have no place to go. It's an interesting paradigm shift for somebody like me who has been selling homes in Tallahassee for the past thirty years!
If you find yourself in this position, come in and talk to us about solutions we have provided for many of our recent clients. We can help you enjoy a low-stress move without the worry of having nowhere to go once your home is sold. We look forward to speaking with you and making you as happy as all our other past clients!2021-05-17T02:55:00-07:002021-06-02T03:25:37-07:00Joe Manausatag:manausa.com,2012-09-20:17878Market Report & Home Affordability Forecast<img src="https://assets.site-static.com/userfiles/663/image/housing-market-home-affordability-2021q1.jpg" width="880" height="587" alt="An updated housing market report that culminates with a graph of how home affordability is likely to change over the next 20 years" title="Home Affordability Forecast" class="img_box_center" />The first quarter of 2021 is in the books and it's time for an updated housing market report. It's also time to start unraveling the coming changes in home affordability.
We start today's report by comparing the first three months of 2021 with the same months in previous years in order to identify trends in the housing market, specifically the changes in supply and the changes in demand. We'll examine current housing market conditions, mortgage interest rates, and home sales trends in an effort to give you an idea of where the market is heading as we move into the hottest months of the year.
At the end of this report, I provide a look at how home affordability is likely to change over the next twenty years. I am able to produce the forecast by simply using the data from the past and applying it forward. If you have a stake in the housing market, you don't want to miss this forecast.
Let's start the report with a quick look at the current listings of homes 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 (unhealthily) higher.
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 these listings in my monthly report so that our readers can observe the record-high rate of listings already under contract with buyers.<br /><br />VIDEO: Home Affordability Forecast
Year Over Year Home Sales Grow
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 year-over-year home sales.
<img src="https://assets.site-static.com/userfiles/663/image/year-over-year-home-sales-tallahassee-april-2021.jpg" width="880" height="770" alt="Year Over Year Home Sales Report Tallahassee" title="Year Over Year Home Sales" class="img_box_center" />
Year over year home sales comparisons provide insight into the market changes by removing the seasonal changes in the market. By only comparing the same month in separate years, we eliminate concerns that the time of year could be affecting the results. For example, we only compare January to January or June to June, thus the seasonal changes in real estate are not a factor.
Year over year home sales rose 11% in March, registering the seventh-straight month of gains and eight out of the past nine months.
Last year, we saw home sales decline sharply in the second quarter as COVID became a fact of life in Tallahassee, thus it is highly likely that we will see gains continue for the next three months.
Though mortgage rates have been creeping higher for most of 2021, last week saw them dip lower for the first time since the first week of the year. The low mortgage interest rates have buyers chomping at the bit to get into a home before rates begin to rise permanently.
Year Over Year Inventory Falls Again
Contrary to demand, the supply of homes for sale continues to drop. Here, we see the count of year-over-year fresh listings entering the market.
<img src="https://assets.site-static.com/userfiles/663/image/year-over-year-new-listings-tallahassee-april-2021.jpg" width="880" height="642" alt="Graph shows year-over-year fresh listings entering the market" title="Year Over Year Inventory Falls Again" class="img_box_center" />
Just as we saw in the first graph, this graph compares each month of the year with the same month from the year prior. We're looking at the change in fresh new listings entering the market, where "fresh" means we only consider homes that were not previously listed for sale.
For the third consecutive month, fresh listings dropped at an alarming rate. As we move further into the report, we'll see how this is impacting both sellers and buyers alike.
Year To Date Home Sales
This next graph shows the number of homes sold during the first quarter in each of the past 20 years.
<img src="https://assets.site-static.com/userfiles/663/image/year-to-date-home-sales-tallahassee-april-2021.jpg" width="880" height="749" alt="Year To Date Home Sales Report Tallahassee" title="Year To Date Home Sales" class="img_box_center" />
2021 has started the year strong, with the number of homes sold sitting as the third-best year ever, trailing only 2005 and 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, <a href="https://www.manausa.com/blog/housing-bubble-2021/" title="Housing Bubble 2021">click here</a> to see a recent report about the potential for a new housing bubble).
The big takeaway from this graph is that demand is strong and growing. So now let's take a look at supply.
Year To Date Fresh Listings
This graph shows the number of fresh new listings that entered the market each month, segmented by existing homes versus new construction homes.
<img src="https://assets.site-static.com/userfiles/663/image/year-to-date-home-listings-tallahassee-april-2021.jpg" width="880" height="686" alt="Graph of inventory changes each month in the Tallahassee real estate market" title="Year To Date Fresh New Listings" class="img_box_center" />
In 2021, we have seen the second-fewest fresh listings for the first quarter of each of the past eight years.
Existing homes entering the market are just one home short of being the worst of the past eight years, while new construction listings are ranked as the third-best. With inventory shortages being pronounced and obvious since 2016, it would be nice to see fresh new construction listings ranking as first-best until the housing market stabilizes.
But that is apparently not going to be the case. This means that bidding wars on the relatively few homes for sale will continue to escalate now that we have seen the inventory reduce to a new all-time low.
If you are wondering why it's so hard to buy a home today, this next graph shows what happens when demand continues to rise while at the same time supply continues to decline.
Status Of Current Home Listings
This next graph shows that there is a higher percentage of homes for sale in Tallahassee 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.
<img src="https://assets.site-static.com/userfiles/663/image/status-of-existing-listings-april-2021.jpg" width="880" height="641" alt="Status Of Current Home Listings April 2021" title="Status Of Current Home Listings" class="img_box_center" />
More than three of every five homes listed for sale right now are already under contract with buyers. The green line in the graph above shows that 63% of the current listings are already under contract, and the one-year trend of the under-contract percentage has reached an all-time high of more than 50%. This graph was produced ten days ago, and we've seen these numbers get worse!
On average, more than one-half of all listings were under contract with buyers at any given time over the past year. So when you consider that we are dealing with the lowest inventory that I've seen in thirty years selling homes in Tallahassee, the reality is much worse, as half of the few listings are not really available.
Currently, we are seeing inventory decline and now two-thirds of the listings aren't really available to buyers. Anecdotally, I recently saw that 82% of the homes listed for sale in Killearn Estates are already under contract! When you consider that this time of year we normally see about a quarter of them under contract, you can understand why it's so tough to buy a home today.
We are expecting more sellers to enter the market over the next four months, but we're also expecting more buyers due to the seasonal changes that occur this time of year. More buyers and more sellers will not likely cause much of a dip in this ratio. And 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 1,140 homes for sale in Leon County, but only 387 of them are really available as buyers have the other 753 already under contract.
With just 387 homes available, it's going to be tough to put together the 450 to 500 closings in May that we were expecting. There are just not enough homes available for today's buyers.
So a buyer today has just 387 homes available to purchase. At this time in 2011, there were nearly four times 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 fast 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 be heartbroken. You will lose out on the home you love, only to find homes more expensive once you get your affairs together.
Smart sellers are taking cash offers (or offers with limited financing contingencies and no contingency for an appraisal), so forget about getting your dream home with a contract that asks the sellers to wait for you to find financing. Again, get your loan documents completed before looking at homes, it's the only way to entice a seller to even consider your offer.
This real estate cycle is so extreme, buyers need to understand that they are not going to be negotiating with a seller, rather they are going to be competing with other buyers for the right to buy the home. The question of what to offer begins at the asking price and moves higher for properly priced homes.
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.
So to summarize our report thus far, demand is strong and supply is insufficient, causing buyers to have to compete with each other over the few homes that are really available. The next segment of our report will examine how the supply and demand dynamic is impacting home prices and home values.<br /><br />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.
<img src="https://assets.site-static.com/userfiles/663/image/real-estate-appreciation-rate-april-2021.jpg" width="880" height="564" alt="Annual Real Estate Appreciation Tallahassee Florida" title="Annual Real Estate Appreciation" class="img_box_center" />
For the first ten or more years of my career, we saw real estate 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 the rampant appreciation that began last year has continued. In an earlier market report, I had forecast the potential for double-digit appreciation for 2021. Through the first quarter of the year, appreciation is more than 4% (an annualized rate of more than 17%).
If builders don't ramp up production for 2021, we could see existing home values rise above an alarming 20% in 2021. To put that into perspective, that means a $250K home purchased in December 2020 will be worth more than $300K at the end of December 2021!
While that might seem wonderful as most people's largest investment is in their home, you have to worry that home affordability might soon be lost for all but the wealthiest people. I don't want to see that happen.
Median Home Price
This graph shows how the median home price has changed in Tallahassee since 2003 (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 each sales price).
<img src="https://assets.site-static.com/userfiles/663/image/median-home-price-april-2021.jpg" width="880" height="568" alt="Median Home Price Tallahassee Florida April 2021" title="Median Home Price" class="img_box_center" />
Take a look at the rapid rise in home prices. The median home price for existing homes is $217K, for new homes the median has shot above $324K, and overall, the median home price in Tallahassee is $235K. That means the middle of the market is 3.1% higher today than when we began the year.
With supply low and demand relatively high, we expect to see the median home price rise for the foreseeable future.
The Big Issue Of Home Affordability
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 show why demand remains strong and what we'll need to see before demand significantly declines.
<img src="https://assets.site-static.com/userfiles/663/image/home-affordability-inflation-adjusted-april-2021.jpg" width="880" height="642" alt="Measurement of annual home affordability adjusted by inflation" title="Home Affordability (Inflation Adjusted)" class="img_box_center" />
Home affordability is going to be the greatest challenge that the housing market faces over the next ten or more years. What most people do not understand is that today's homes are nearly more affordable than they have been during all of my previous thirty years in the real estate industry. Let me show you what I mean.
This graph was created by adjusting home prices over the past thirty years to 1991 prices. I simply took the average home price each year, divided it by the Consumer Price Index for that year, and then multiplied by 100. This calculation created the blue field in the graph above, where each year's home price was adjusted to 1991 home prices.
Then, I used the adjusted home prices and combined them with historical mortgage interest rates to determine the average monthly mortgage payment for each year. This payment is plotted in red and measured on the right vertical axis. It is this red payment line that we use in the discussion of home affordability, and homes gain in affordability as the payment lowers, while the opposite is true when the payment rises.
When we adjust for inflation, we find that 2012 was the most affordable year for the average home in Tallahassee, with the average monthly mortgage payment just $427 dollars (that's 1991 dollars though). The opposite end of the spectrum was in 2006 when the average monthly mortgage payment was $823, again, adjusted to 1991 dollars.
So how affordable is today's average home? It's more affordable now than was the average home in 24 of the past 30 years! Today's average home is more affordable than the average home in all of the 1990s decade!
Fortunately for buyers, interest rates have remained lower than all previous years' averages, meaning that the monthly payment to carry the median home has slightly declined! Rates are actually higher than they were at the end of last year, but this graph is calculated on an annual basis and used averages each year.
The big takeaway from this graph is that when we adjust for inflation, we realize that today's home affordability is two things:
Home affordability is excellent right now
Home affordability is likely lower today than it will be for the rest of your life!
That's right, I think we hit the bottom for home affordability in 2012, and it will take a significant inflationary period for future dollars to come down to today's $507 monthly mortgage payment adjusted to 1991 dollars. There are too many factors working to erode home affordability, led by rising mortgage interest rates (see how this will be a generational shift in housing) and the rising cost of new construction. Homes will be getting more expensive, and so too will be the money used to finance home purchases. This double-whammy will take home affordability to a level that will make homeownership much tougher than I have seen during my career.
One Forecast For Home Affordability
Our final graph is a fair estimate of how home affordability could easily progress, knowing what we know today.
<img src="https://assets.site-static.com/userfiles/663/image/housing-affordability-forecast-model.jpg" width="880" height="642" alt="Home affordability forecast for 20 years" title="Forecast For Home Affordability" class="img_box_center" />
I continued the previous graph through the year 2040. The table within the graph shows the annual measurements, and I'll tell you that they are not far-fetched and could easily happen.
I had mortgage interest rates stay the same as present rates for two years and then increase 1/4% each year. Home prices moved up 15% for two years and then stabilized at a 5% growth rate and the CPI used for adjustment was the CPI average of the past thirty years. Based upon the history of these three data sets, this could easily happen.
Am I forecasting this? Not yet, I have not given it enough thought. But I will warn you, this is a very conservative estimate of what could happen. If inflation is higher over the next twenty years than it was in the recent 30, then that would bring down the adjusted home price and mortgage payment. But look at the graph, it will still be a housing market that is far less affordable than what we have enjoyed in the past.
When I see this graph, I have a hard time believing that mortgage interest rates will stay below 8% for the next 20 years. The reason that I kept them low, however, is that the Fed has promised to keep rates low unless inflation moves well above 2% for more than a year. As my model calls for 2.23% inflation, it means the Fed would move rates higher, slowly.
As far as home prices moving higher, I had them move up 15%, 15%, 10%, 10%, and then 5% per year thereafter, and I think this is conservatively plausible. Florida's minimum wage will move higher at a faster rate than ever, up 75% in the next five and one-half years. I know many other states are considering or have already pushed to do something similar.
An increase in the minimum wage will have an impact on many aspects of the economy, and specifically, it will add to the cost of materials and labor required in building more homes. Couple this with the current low supply of homes for sale and the ongoing hyperinflation of real estate and I think my forecast for home prices is conservative, though adjusted home prices could soften.
The Take Away From This Month's Market Report
We are in the midst of the sellers' market of the ages, with demand far exceeding the existing supply of homes at all but the very top prices in the market. If you have a home to sell and market it correctly, you will get offers on the first days your home is available to be seen. Ensure your broker uses an <a href="https://www.manausa.com/how-to-sell-your-house/" title="Sell Home 2021">omnichannel marketing plan with a prolonged pre-marketing period</a> and you'll be able to choose from the multiple offers that you receive.
When mortgage interest rates rise, it will have an immediate and significant impact on demand if rates rise too quickly.
The luxury homes market could very well go dormant, as it has been super-hot over the past few years (setting a record for sales last year and continuing thus far in 2021). The top-end of the market is most susceptible to collapse due to rising mortgage interest rates, so high-end sellers need to "make hay while the sun is shining!).
So long as rates rise gradually, we'll see demand cool in the market, but not in an overly 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 once the Fed gains confidence in the economy, but forecasting the future change of mortgage interest rates is highly speculative.
Today's real estate 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 financed at a very low mortgage interest rate!2021-04-12T02:59:00-07:002021-07-18T10:19:40-07:00Joe Manausatag:manausa.com,2012-09-20:17804Are Home Sales Sustainable At Today's Pace?<img src="https://assets.site-static.com/userfiles/663/image/are-home-sales-sustainable-at-todays-pace-april-2021.jpg" width="880" height="587" alt="The housing market is hot, but is it too hot? Can we keep selling homes at the rates we're seeing today, or is this a case of what goes up, must come down?" title="Are Home Sales Sustainable At Today's Pace?" class="img_box_center" />Recently, I was discussing the sustainability of today's pace of home sales with a friend and it gave me the idea to dust off some old data in order to find an answer to this important conversation.
The housing market is hot, but is it too hot? Can we keep selling homes at the rates we're seeing today, or is this a case of what goes up, must come down?
I'll do my best to answer these questions in today's housing market report.
Let's start by looking at the current listings available in the Tallahassee real estate market. What should jump out at you as you scroll through these homes is that a bunch of the ones priced below $600K are already under contract with buyers!
Tallahassee Homes For Sale<br /><br />VIDEO: Home Sales Sustainability
Just a quick note on my sources of information for this report. Normally, the charts and graphs that I share are produced from information taken from the Tallahassee Board of Realtors Multiple Listing Service (MLS), but all but the last two graphs were produced from information purchased from Metro Market Trends.
<img src="https://assets.site-static.com/userfiles/663/image/realtor-share-of-housing-market-april-2021.jpg" width="800" height="610" alt="The graph compares home sales in the MLS to all homes sold in the area" title="Realtor Share Of Home Sales In Tallahassee" class="img_box_center" />
The MLS does not contain all the sales in our area. Right now, about 81% of all home sales are reported by the MLS, so a more accurate view of the entire market is through data that comes from the Leon County Property Tax Appraiser. This is the source of the data that I use.
The graph above shows all home sales plotted in red, while the Tallahassee Board Of Realtors logo area reveals the number of home sales contained in the Realtor MLS.
I favor using the MLS in most reports, as it is available far sooner than the date upon which the County can deliver. But when I really want to know information on all home sales, I have to look beyond the MLS.
How Sustainable Is Today's Pace Of Home Sales?
I believe the best way to evaluate the sustainability of the current pace of home sales is to look at the past. Our first graph starts with a view of existing home sales.
<img src="https://assets.site-static.com/userfiles/663/image/existing-home-sales-trend-april-2021.jpg" width="800" height="583" alt="Graph Of Existing Home Sales From 1991 To 2021" title="Existing Home Sales 1991 To 2021" class="img_box_center" />
There is a blue diamond posted for the number of existing homes sold each month going all the way back to January 1991. The red line plots the linear trend of monthly sales.
The linear trend shows that there is a general increase in the number of existing homes sold each month, though recent numbers are nowhere near the level we saw in the years prior to the housing bubble. But there is more to the market than just existing home sales.
New Home Sales Trending Lower
Unlike existing home sales, new home sales are trending lower, at a significantly faster rate.
<img src="https://assets.site-static.com/userfiles/663/image/new-home-sales-trend-april-2021.jpg" width="800" height="583" alt="Graph of new home sales from 1991 to 2021" title="New Home Sales 1991 to 2021" class="img_box_center" />
The linear trend here shows a decline of nearly 70% from 1991 to today, and there does not seem to be an effort from builders to grow. While we might be able to blame today's fewer new construction sales on the impact of the pandemic, the reality is that new home sales should have escalated back in 2016 when market equilibrium was reached.
Declining Overall Trend In Home Sales
The fourth graph in today's report puts the data from each of the past two graphs together and generates the 30-year trend for home sales in Tallahassee.
<img src="https://assets.site-static.com/userfiles/663/image/home-sales-trend-april-2021.jpg" width="800" height="583" alt="Graph of all home sales in Tallahassee 1991 to 2021" title="Tallahassee Home Sales 1991 to 2021" class="img_box_center" />
I found it surprising that the overall trend for the past 30 years was declining, but that is indeed the case. One would expect a decline if the population was declining or if jobs and economic growth were receding, but our next graph negates the issue of population growth.
Population Growth Yet Declining Home Sales
This graph plots annual home sales in blue against annual population totals (filled background).
<img src="https://assets.site-static.com/userfiles/663/image/home-sales-trend-vs-population-growth-2021.jpg" width="800" height="583" alt="Graph of home sales versus population change in Tallahassee, Florida" title="Home Sales Versus Population Change" class="img_box_center" />
Tallahassee's annual population has grown at an average rate of 1.38% from 1991 through the present time, which means there are an additional 50% more people in Tallahassee today than there were in 1991.
One would think that there would be a parallel increase in the overall housing market, but that has obviously not occurred. In fact, the linear trend of home sales is declining. To be clear, our population is growing, and yet the number of homes selling each year is on the decline!
One explanation could be that the 1990s enjoyed a robust housing market, and if our data went back further, we might see significantly lower sales figures. Unfortunately, I do not have that data!
Our next graph will look at long-term trends and cycles to see what "the numbers" say about the sustainability of home sales in Tallahassee.<br /><br />What Will Future Reports Reveal?
The final two graphs in today's report come from data pulled from the Tallahassee MLS. This allows me to assess the market nearly a full month earlier than I can by relying on data from the property tax appraiser's office.
<img src="https://assets.site-static.com/userfiles/663/image/year-over-year-home-sales-apr-2021.jpg" width="800" height="697" alt="Graph of year over year home sales in Tallahassee through March 2021" title="Year Over Year Home Sales Through March 2021" class="img_box_center" />
Home sales in the MLS rose about 10% in March when compared to March of 2020. There might still be some real estate agents posting sales late, so we can expect a slightly higher number of homes sold in March when all have been reported.
The housing market is on a very strong run right now. For the past seven months (and eight of the past nine), the MLS has posted year-over-year gains. Considering how sales fell off when COVID hit last year, it won't surprise me to see three more months of gains in our near future.
Year To Date Home Sales Rise 11%
While the previous graph measured year-over-year home sales, this graph measures home sales year-to-date, thus each year is showing the number of homes sold in the first quarter.
<img src="https://assets.site-static.com/userfiles/663/image/year-to-date-home-sales-apr-2021.jpg" width="800" height="701" alt="Graph of year to date home sales in Tallahassee through March 2021" title="Year To Date Home Sales In Tallahassee Through March 2021" class="img_box_center" />
Home sales in 2021 trail only 2005 and 2006 for the number of homes sold in the first quarter of the year. Though this graph only goes back to 2002, I will tell you that this means 2021 has started out as the third strongest year ever in Tallahassee.
And therein lies the question that we have attempted to understand in this report. Is this level of home sales sustainable?
Based on what we have examined today, I do believe so. All but two factors appear to support continued growth in the housing market, and those two (rising mortgage interest rates and declining home affordability) have not shown themselves to be show stoppers yet.
But that's why we monitor everything so closely. We'll let you know when the first signs of a slow-down begin. We'll see the relative supply of homes begin to rise, and then we'll see the real supply follow suit. The housing market does not change overnight, so we'll all have advanced notice of what's to come.<br /><br />Long-Term Home Sales Trends
This next graph plots monthly home sales and then computes the one-year, 8-year, and 16-year trends in order
<img src="https://assets.site-static.com/userfiles/663/image/tallahassee-home-sales-history-march-2021.jpg" width="800" height="584" alt="Graph of home sales trends in Tallahassee, Florida" title="Home Sales Trend Analysis" class="img_box_center" />
The red line in the chart above plots the one-year trend of home sales. This means that every point on the chart represents the average number of homes sold each month for the past year. Similarly, the blue line plots the average number of homes sold each month over the past eight years, while the gray line plots the average number of homes sold each month over the past sixteen years.
While I am not a true math geek (readers who are, please chime in down in the comments section below), I think this chart shows a lot of upside potential. The one-year average is above both the longer-term trends. The middle trend at eight years just crossed over the long-term trend and (I believe) suggests that we'll see about seven to eight more years of the growth trend in the eight-year average.
Again, this is not my specialty, but I do believe that the combination of recent years' home sales activity with a growing population favors a growing housing market. Sure, there are many short-term factors that could derail this (rapidly rising mortgage interest rates, lost jobs, struggling economy, etc.), but I think history supports the expected growth in housing.
The Fly In The Ointment
While history favors a growing housing market, I do believe the biggest issue that we'll need to overcome is affordability.
<img src="https://assets.site-static.com/userfiles/663/image/average-home-values-april-2021.jpg" width="800" height="584" alt="Graph of average home values in Tallahassee from 1991 to 2021" title="Average Home Values In Tallahassee" class="img_box_center" />
This graph plots the average price per square foot of homes sold each month in Tallahassee over the past thirty years. The blue line plots the one-year average (which just moved to an all-time high), while the thin black line measures the eight-year average.
The yellow line was added manually and is not "scientific," but I use it to take the average from the 1990s and extend it forward. During the housing market recovery, we saw home values drop below this average, but since 2018, homes have appreciated in value to levels above this growth rate.
Unfortunately, we do not have data prior to the 1990s, so we have no idea how "normal" the appreciation rate was during that decade. I've used this graph for years though to estimate the number of people who were upside-down in their homes due to the bursting of the housing bubble back in 2006. I am happy to report, that number is now down to zero.
The eight-year trend line provides an interesting insight. We saw it rise from as early as the mid-1990s through sometime in 2010 (so at least 15 years), though it went through about 8 years of decline before reversing to positive about 3 years ago. So what does this mean?
The short answer is I'm not really sure, though I'm betting on at least five more years of value growth before we see any real sign of a negative movement. Of course, when you factor in the many measurements and statistics that I've shared in recent reports that specifically relate to the supply and demand for homes, everything in the market points to values rising at faster-than-normal rates for the foreseeable future.2021-04-05T02:50:00-07:002021-07-18T10:19:52-07:00Joe Manausatag:manausa.com,2012-09-20:17528Housing Market 2021 And Beyond: Boom Or Bust?<img src="https://assets.site-static.com/userfiles/663/image/housing-market-2021-boom-or-bust.jpg" width="880" height="587" alt="Here's what's going on with the US housing market in 2021" title="Boom Or Doom For Housing" class="img_box_center" />So what's going on with the housing market in 2021? Are we getting ready to relive the 2005 market? Or perhaps the 2006 market as it all came tumbling down?
The flashy headlines from the street corner evangelistic style of the talking heads on YouTube have warned that an imminent crash will be here momentarily, but I remain unconvinced. Each of these self-proclaimed experts latch onto one or two statistics and then builds a narrative about how that sole statistic means the end of the housing market as we know it. Fortunately, you have to take in the whole scope of the market and examine the totality of all the facts and statistics before you render judgment.
Am I concerned about the housing market? Yes! Are home values moving higher at too rapid a rate? Yes! Am I concerned about home affordability for the average Joe? Absolutely. Are all these concerns leading to a housing correction where values fall for a period of time? I don't think so.
If you want to really understand the market forces driving the housing market and use this information to forecast the likeliest outcome in housing, then you have found the right report. No preaching, just facts! No bold headlines, just an examination of the US housing market from a guy who has been brokering homes for the past 30 years. Here's what I believe you show know:<br /><br />US Housing Market Forecast Video
Supply & Demand Determine Home Value Change
The first thing to remember when somebody is throwing a bunch of "facts" at you is that supply and demand is the dynamic that determines the direction of home values. Nothing else matters.
So when you are told that every home purchased in 2021 will be foreclosed upon, then you have to ask yourself "how will this impact the supply and demand for homes in my market area." When you hear that the Secretary of HUD has been abducted by aliens, again, consider how that will impact the supply and demand for homes in your market area. No matter what the talking heads say, you simply have to take it in, determine if it is believable, and then consider its impact on the supply and demand for homes in your area.
Now, not everything being spouted on YouTube about real estate is crazy. There are a lot of people out there who share solid facts, it's just the quick conclusions they reach that warrant a deeper dive into the data. I will attempt to take each point that impacts the supply and demand for homes at the national level and critique it based upon information that is available today. If you feel that I have left an important issue out of my report, please comment below or call, text, or email me so that I can improve this report.
Unlike my normal reports, I'm going to NOT drill-down to my local market in Tallahassee, rather I am going to keep the focus on the entire US housing market. I have always claimed that Tallahassee is a great bellwether for the overall US market, and today's report will demonstrate the truth of this claim.<br /><br />Major Market Forces Impacting The Housing Market
In order to assess current housing market conditions for the purpose of forecasting future real estate market movements, I am going to identify market forces, segmented by whether they impact supply or demand, and then provide some graphs and analysis on the ones most likely to impact home sales.
Before proceeding, I want to address the supply and demand dynamic to ensure that we are on the same page moving forward. When supply and demand are balanced, history has shown an annualized appreciation rate of just under 3.5%. As a general rule, prices (and values) move higher when the market favors sellers (less inventory), while prices and values move lower when the market favors buyers.
This is not a dynamic unique to the real estate market, it is true with every commodity. When demand outpaces supply, prices move higher. When supply outpaces demand, prices drop.
The Supply Side Of The Housing Market
The next several graphs and my analysis are focused on the issues that will impact the supply side of the housing market.
Foreclosures - The issue of foreclosures due to lost jobs from COVID-19 is perhaps the hottest issue raised by the housing market doomsayers. They correctly point out that the moratorium on foreclosures is creating a backlog that will flood into the market when the moratorium is finally lifted.
On this point, I agree that the worst-case scenario, as it can be measured right now, is just under two million foreclosures that could occur and bring a quick volume of supply to the housing market. What they don't consider however, is the state of the supply and demand for homes right now.
Back in the great recession of 2008, it has been estimated (by the Chicago Fed) that approximately 3.8 million foreclosures entered the market between 2007 and 2010. The market they entered though is significantly different than is the market today.
First of all, the supply of homes for sale had been high for years, thus property values had fallen roughly 30%. So the 3.8 million foreclosures entered an over-supplied market suffering from depressed values, and it took years to consume these additional homes.
Today, the market is grossly under-supplied, and equally as important, it is also awash with equity.
Equity In The Housing Market
The great recession foreclosures had no equity, that's why they ended up being foreclosed upon. Today, the majority of the 1.8 million estimated foreclosures have enough equity to sell before the banks are forced to complete the foreclosure.
<img src="https://assets.site-static.com/userfiles/663/image/us-mortgage-debt-equity.jpg" width="800" height="583" alt="US Home equity and Mortgage debt graph from 1945 to 2020" title="Record-High US Home Equity" class="img_box_center" />
The record-high level of home equity in the market means that many of those distressed sellers will walk away from closing with a check. They will be served foreclosure papers, but they'll be able to sell their home on their own and avoid actual bank foreclosure.
The legal foreclosure process generally can’t start during the first 120 days after a borrower falls behind on a mortgage. After that, once a servicer begins the legal process, the amount of time the borrower has until an actual foreclosure sale varies by state. It could be (rarely) as quick as five months and as long as several years if you hire a competent foreclosure defense attorney. Regardless of where the US home is located, there is adequate time for the owner to put the home on the market and sell it for top dollar. Remember, supply is low, demand is high, it's a great market to sell a home, even if you do not want to do so!
In the graph above, the blue line measures aggregate home equity in the US. Look at the year 2008, equity had fallen dramatically, though the debt measured far higher than ever. Today this dynamic has reversed.
This is a hugely important point that most doomsayers do not seem to understand. A foreclosure occurs when you fail to make your payments, but that doesn't mean you give your house to the bank. If you have equity in the property, you sell the property and repay the bank. This is not 2008!
Now, you might be thinking, when 1.8 million homes enter the market (over the course of several months to a year), it might change the supply and demand dynamic. And I will tell you, it most certainly will.
In a positive way!
The Relative Supply Of Homes For Sale In The US
We need more homes, and those foreclosures (though very sad for the current owners) will be well-received by buyers trying to find a home today.
<img src="https://assets.site-static.com/userfiles/663/image/us-supply-homes-for-sale-3-2021.jpg" width="800" height="583" alt="US Supply of homes for sale through 2020" title="Supply Of Homes For Sale In The US" class="img_box_center" />
The graph above plots the supply of homes for sale each month in blue, and then measures the relative supply in red (supply, relative to the current rate of demand). The red line shows clearly that the relative supply of homes for sale is at an all-time low. This is the reason that most markets are experiencing bidding wars on most properties priced below the top 15% of the market.
This historic-low level of inventory means that the market is nowhere near the condition it was in back in 2006 when demand began to fall. The supply of homes for sale back in 2006 and 2007 was approaching 4 million homes, whereas, in December 2020, there were just over 1 million homes! This market is grossly under-supplied, that's why the red line has collapsed to a frightening level below 2 months of supply.
This low inventory level means that there are not enough (estimated) foreclosures in the pipeline to have an adverse effect on the market. I suspect, should all 1.8M enter the market, it will have a calming effect, bringing the months of supply of homes up to a level that will slow the hyper-inflating home appreciation rates that we are dealing with right now.
The next major issue the doomsayers will point out is that the current foreclosure estimate is just a drop in the bucket, as there are millions of borrowers using forbearance as a way of postponing their foreclosure.
Mortgage Loans In Forbearance
Mortgage loan forbearance is the term used when a lender allows a borrower to temporarily pay less or nothing on a loan for a pre-determined period of time. When COVID struck, lenders were quick to announce forbearance for a long period of time.
In fact, there have been several extensions and some people might push their forbearance on payments out to 18 months of zero payments. The doomsayers believe these borrowers' homes will all be added to the foreclosures mentioned previously, and thus swamp the market with significantly more inventory. I'm not so sure.
<img src="https://assets.site-static.com/userfiles/663/image/us-mortgage-loan-status-report-2021.jpg" width="800" height="583" alt="US mortgage loan status including late, foreclosure, and forbearance" title="Status Of US Mortgage Loans" class="img_box_center" />
The graph above shows the status of existing US home loans. It was produced from data gathered by the Federal Housing Finance Agency and it goes through the third quarter of last year.
Can you notice any trends in the graph?
Only 1% of mortgage loans are estimated to be between 30 to 60 days past due
Less than 1% of mortgage loans are estimated to be 90 to 180 days past due
Less than 1/2 of 1% of mortgage loans are estimated to be in foreclosure, bankruptcy or in the process of being terminated with a deed in lieu of foreclosure
5% of mortgage loans are estimated to be in forbearance
As of two weeks ago, the Mortgage Brokers Association (MBA) estimated that 2.6 million homeowners are in forbearance plans.
Something that is not shown in the graph is that the loan forbearance programs allowed people to opt-in without significant proof of financial necessity. This means that many of those in forbearance are people who were concerned about the pandemic and wanted to stockpile cash when their lenders gave them that option.
Ultimately, it's hard to guestimate how many of these loans in forbearance will make their way to the market through default, but these will occur after the loan foreclosure wave that first hits the inventory later this year or early next year. Remember, loans in forbearance will be started and it will take a minimum of 120 days of late payments to start the foreclosure process, meaning we won't likely see any current loans in forbearance show up as foreclosures in 2021.
Builder Homes
I have been clamoring for builders to step up the pace of construction. Demand is so high that anything with four walls and a roof will sell today.
<img src="https://assets.site-static.com/userfiles/663/image/us-new-home-sales-population-2020.jpg" width="800" height="542" alt="Demand is so high that anything with four walls and a roof will sell today" title="New Construction Historical Sales Graph" class="img_box_center" />
The graph above plots new construction home sales each year against the total population in the US. The number of new homes built and sold is shown in red and measured on the left vertical axis.
Builders stepped up production in 2020, but it was nowhere near the level required to fulfill demand. Even with heightened demand and historic-low inventories, builders only produced enough homes to tie for the eleventh-best year on record for new construction homes.
Knowing that contractors build homes to earn their living, I am confident there has to be a reason why the pace of construction is so low.
I found the following quote from the <a href="https://www.noradarealestate.com/blog/housing-market-predictions/" title="Why builders are not building new homes">National Association of Home Builders</a> that brings some clarity to this issue:
"A shortage of buildable lots is making it difficult to meet strong demand and rising material prices are far outpacing increases in home prices, which in turn is harming housing affordability." - National Association of Home Builders Chief Economist Robert Dietz
So the explanation from the builders makes sense. The cost to build homes right now is through the roof, and while existing homes are moving up in value, they are doing so at a slower rate than at which building costs are currently rising. We'll have to take a wait-and-see position for builders to heavily return to the housing market.
I do believe builder costs will not continue to rise as fast as will existing homes, so I'm expecting new construction to recover. Builders will have to pay close attention to the supply of distressed homes entering the market to ensure that we don't see the market flip to an oversupply.
130 Years Of US Home Prices
So just how fast are home prices rising? The following graph of US Home Prices was prepared using data from two separate publications by Robert J. Shiller and is current through the end of 2020.
<img src="https://assets.site-static.com/userfiles/663/image/us-home-prices-march-2021.jpg" width="800" height="584" alt="130 years of the US Home Price Index" title="US Home Price Index History" class="img_box_center" />
This graph parallels my own records from the Tallahassee housing market for the past thirty years. On average, the price of homes has risen 3.46% each year since 1890, but home prices are moving higher at a faster rate since 1965.
From 1890 to 1965, the average growth rate for home prices was just 2.3%, but the growth rate has risen by more than double since that time as prices have moved at an average annual rate of 5.0% since 1965.
I do have real concerns that we'll see this rate of growth move even higher as many states move to increase the minimum wage faster than has ever been done before. In Florida, the minimum wage has risen 55% since 2005 (the end of the last housing expansion phase) but will move more than 75% higher over the next four and one-half years. Couple rising wages with the rising cost of diminishing land, and we shouldn't be surprised to see the rate of home price growth double again.
Summarizing The Supply Side Of The Housing Market
Before we move on to demand, let's ensure we have a good grip on supply.
The market is currently dealing with historic-low levels of homes for sale in most US housing markets, where buyers are ending up in bidding wars for 85% of the homes. The graph of supply shown previously showed only 1.9 months of supply (where six months is typically considered a balanced market).
There are those that believe we'll see a flood of inventory stream into the market when foreclosure moratoriums are lifted and forbearance programs expire. I agree with this belief, but I don't see it as a negative. I see this as market-positive news (with respect to those who will lose their homes).
It is my belief that there is a combination of equity in the market as well as a need for these homes that will prohibit the market from tilting out of control on the supply-side. These homes are needed, many of the current owners have equity, and the market will comfortably consume them in less than a year or two (the rate will depend on the aggressiveness of the lenders forcing foreclosure actions).
Finally, there are the homebuilders. From 2004 through 2006, it was the homebuilders whose failure to pump the brakes on new construction that drove the supply-side of the housing market far beyond what was needed. This glut of supply took ten years to consume before the market returned to equilibrium.
But not today. Builders are struggling with soaring prices. Much is due to the pandemic, but in the Southeast, Hurricane Michael had already put a hurt on materials needed for new home construction. It will take more appreciation in the existing homes market (or falling material costs) before builders can ramp up production.
So that's where we stand on the supply-side, let's flip over to the demand side of the housing market.<br /><br />The Demand Side Of The Housing Market
The next several graphs and my analysis are focused on the issues that will impact the demand side of the housing market.
Population Growth Continues
The US population continues to grow, and an overly simplified thought is that more people will need more houses.
<img src="https://assets.site-static.com/userfiles/663/image/us-population-march-2021.jpg" width="800" height="543" alt="The US population continues to grow, and an overly simplified thought is that more people will need more houses" title="US Population Growth Continues" class="img_box_center" />
The size of the population is a primary reason why there are more home sales in an area like Tampa, Florida with several million people than there are in my market area (Tallahassee, Florida) with several hundred thousand people.
The US is growing, though it appears as if the growth rate is receding slightly. I am not highly confident that the 2020 US Census was as accurate as the previous years when there was not a global pandemic interfering with the process. Time will tell, but the continued growth of the population suggests that we will see the continued growth of the housing market, though population growth in itself does not mean the market is immune to market corrections.
Household Growth Forecast
While the overall growth of the population does impact housing, it is the demographic changes occurring that will have a stronger impact on home sales in the coming years. Perhaps the greatest demographic change is in the group of people most likely to buy a home.
As an aside, if you really want a good study on the state of the US housing market, you should annually read "The State Of The Nation's Housing" which is published by the Joint Center For Housing Studies Of Harvard University. It is packed full of non-headline producing content that is far more valuable than you will find from most shock-inspired YouTube videos.
The following was taken from the Harvard report, and it shows why the changing of the guard, from Baby Boomers to Millenials, will have a strong impact on the housing market now and for several years into the future. The report states:
"Demographic changes favor homeownership. The Census Bureau’s most recent population estimates point to strong growth in the number of 30–44 year olds, the age group most likely to purchase homes. In fact, adults in this age range accounted for half of total population growth between 2018 and 2019. In addition, the economic fallout from the pandemic has had a relatively modest impact on higher-income households, another demographic group likely to purchase homes."
Again, I encourage you to read the report, as it meticulously breaks down the economic fallout from the pandemic which has not been equally born across all demographics.
Employment Rate - A Prime Factor In Demand
For most people buying a home, qualifying for a mortgage is a critical step in the home buying process. One major component of this qualification is employment.
<img src="https://assets.site-static.com/userfiles/663/image/national-unemployment-rate-history-march-2021.jpg" width="800" height="507" alt="The unemployment rate graphed from 1991 through 2020" title="US Unemployment Rate History" class="img_box_center" />
According to the US Bureau of Labor Statistics, the current unemployment rate has fallen from 14.7 percent in April down to 6.2 percent in February of 2021. This means the current rate is just slightly higher than the 30-year average, but roughly 80 percent higher than the pre-pandemic rate of just 3.5 percent.
We have to take in the full picture of unemployment. First of all, I truly feel for anybody who has lost a job for any reason. Though I did not know it at the time, the pre-pandemic economy was one of the best ever when you consider how strong the employment rate was. That is why we can be so close to a 30-year average yet be so much worse off than just a little more than a year ago.
Again, with respect to those that have lost jobs that have not yet been restored to full employment, the pandemic did not fairly distribute the losses, as the majority of the remaining losses are for lower-wage jobs that are not a major component of the housing market.
If you want a more in-depth study on lost jobs, I again encourage you to read the Harvard Report, it does a far better job than I can do explaining the impact of unemployment on the current and future housing markets.
Equity In The Market Impacts Demand Too
Though we addressed the historic-high equity when previously evaluating the supply side of the housing market, it's important to understand that it also has a beneficial impact on the demand side of the market.
<img src="https://assets.site-static.com/userfiles/663/image/equity-us-housing-market-march-2021.jpg" width="800" height="583" alt="Home equity graph from from 1945 to 2020" title="Record-High Home Equity" class="img_box_center" />
Many move-up buyers have enough equity in their homes today to comfortably buy a larger home without having to come out of pocket for the down payment, as the equity in the current home more than covers this requirement.
Equity in the market is one of those double-whammy factors that most doomsayers only seem to notice when there is no equity, yet they forget that equity is often a positive factor for homeowners. Today, homeowners have more equity than ever before!
Mortgage Interest Rates
If I had to choose the scariest factor that could negatively impact the demand side of the housing market, then mortgage interest rates would be first on the list.
<img src="https://assets.site-static.com/userfiles/663/image/mortgage-interest-rates-march-2021.jpg" width="800" height="583" alt="Mortgage interest rates plotted monthly for more than 50 years" title="Historic Mortgage Interest Rates" class="img_box_center" />
The demand side of the housing market has been heavily fueled by historic-low mortgage interest rates. The graph above plots more than fifty years' worth of average monthly mortgage interest rates, and December 2020's 2.68% is the lowest of the 602 months plotted. If you closed on a loan in December of last year, you should high-five your family members, because it appears as if you timed the market to perfection!
The reason that mortgage interest rate change scares me so much is that at some point, rates are going to move higher. Currently, rates are at near all-time record lows, and they eventually have to start moving higher. Will they move higher this year? Next year? Three years from now? I have no idea. But they will move higher.
When mortgage interest rates begin the inevitable move to higher ground, the pace at which rates rise will determine the impact on the market. Rates ticked up slightly the past two months, but not enough to negatively impact the market. In fact, there are some buyers jumping into the market as they feared the low-interest rate window of opportunity was closing.
The pace at which mortgage interest rates rise, when they do begin to rise, will determine how much rates impact the market. If rates move slowly (rising less than 1% each year), there won't be an insurmountable sticker shock for buyers. Remember, as rates rise, home affordability declines.
Even with small moves, we will see luxury home sales cool. Though I do not have a national statistic, I can tell you that 78% of the buyers in my market area that fell within the top 1% of the market over the past 18 years borrowed money when they purchased their luxury homes. This group of buyers will be squeezed quickly with rising rates.
I believe we won't see rates rise substantially in 2021, and the pace that rates rise will directly relate to the pace of the economic recovery across the country. As I have said in previous reports, the Fed is somewhat trapped with competing interests on mortgage rates.
The Fed will need to keep the funds rate low to help the overall economy recover, but at the same time, it's going to be concerned about hyperinflation in the housing market. I suspect we'll see rates stay fairly low for the foreseeable future, and it's my belief this will keep the housing market flush with capital for 2021 and 2022 if not longer.
Tightened Lending Policies
Though the cost of money is cheap, there is another factor that could slow the housing market when it comes to mortgage lending. What will happen if lenders tighten their lending policies.
Remember, a major factor in the housing market collapse before the great recession was the new loan programs that popped up allowing anybody with a pulse to borrow money. These programs ignored key default indicators like credit history and income verification, and thus created a limitless pool of money that drove the market higher. When these loan programs went away, so too did demand.
Ignorant doomsayers think today's heightened demand is partially the result of similar loans. This is just not true. The buyers coming through my office are as strong financially as I have ever seen. This observation is backed up by the Harvard report too, which writes:
... data from the New York Fed Consumer Credit Panel and Equifax show that credit scores for borrowers of newly originated home purchase mortgages have generally been on the rise for two decades. From a low of 698 in the second quarter of 2000, the median credit score jumped to 743 in the first three quarters of 2003 and then held near 720 through the end of 2007. Since then, the median score fluctuated around the 760s before climbing to 770 in the fourth quarter of 2019. By the second quarter of 2020, the median score stood at 784—its highest level in records going back to 1999.
Understanding that today's buyer's creditworthiness is stronger than ever, it is more likely that we'll not see a major tightening of lending standards. We have seen some wrenching-down on investment loans (loans real estate investors use to buy homes that are leased out to tenants), but I believe interest rates will cool demand to adequately appease lenders' needs to tighten the screws on people buying as owner-occupants.
Foreclosed Owners Out Of The Market
We covered foreclosures in our analysis of the supply side of the housing market, but we also need to consider them on the demand side as well.
Why? Because this niche group of people are clearly part of the pool of people who traditionally own homes, yet they will not likely be buying in the next several years.
Many lenders require a minimum waiting period after a foreclosure before a buyer can apply for a new mortgage loan. The waiting period for FHA loans is three years, it's seven years for Fannie Mae/Freddie Mac loans, and just two years for VA loans for military and veteran borrowers.
Thus, if we see four million foreclosure sales, that means we'll see the buyer pool shrink by four million people that will not return for two to seven years. Of course, as mentioned prior, the number of foreclosures sales will be greatly reduced due to the equity in the market and the ability of distressed homeowners to sell their homes on the open market and to avoid a foreclosure sale.<br /><br />Summarizing The Demand Side Of The Housing Market
Though there are other factors that could impact the demand side of the housing market, I believe I have addressed the most pressing ones. So let's put it all together.
Demand for homes is very strong right now, and my primary concern about sustaining this level of demand rests on the back of mortgage interest rates. Currently, rates are at near all-time record lows, and they eventually have to start moving higher. I don't think it will happen in a rapid manner in the next two years, but when it does, the pace at which rates rise will determine the impact on the market.
Population growth continues in the US, albeit at an apparently slower rate than before. Remember, more people = more home sales. Also, the shift in the demographics of the population, from baby boomers to millennials means that more people are entering the primary home-buying stages of their lives. Everything about our population analysis suggests that the demand in the housing market will be growing.
Employment is an interesting variable because the pre-pandemic unemployment rate was at an all-time low. Currently, the unemployment rate is very near the 30-year average, and time will tell if the Biden Administration can get the economy back to pre-pandemic levels. Even if it does not, it does appear as if the economy will be "better than average" and we should expect better than average support for home sales from our economy.
Many buyers have more cash than ever! Why? Because their current homes have more equity than ever. The equity in the housing market has never been higher, thus buyers have more fuel to add to the fire that is today's housing market.
There does not appear to be any substantial tightening of lending policies coming our way, as today's borrower is stronger than any we've seen in the past twenty-one years. High credit scores and a strong repayment history do not require a damper from lenders.
One reduction in the overall demand picture will be those traditional homeowners who have to sit out over the next two to seven years due to a recent foreclosure. The size of this segment of the buyer pool is not likely to be significant, as many people who will be served with papers starting the foreclosure process have enough equity in their homes so they will be able to sell on the open market and avoid a foreclosure sale.
Overall, the demand for homes looks to remain strong for the foreseeable future.
Housing Market 2021 And Beyond: Boom Or Bust?
After a fairly exhaustive study of both the supply side and demand side of the US housing market, I believe the prospects for US home sales for the next few years are very good. Though mortgage interest rates are a variable that could singularly work to reverse this view, it is more likely that we will see mortgage interest rates move higher at a rate that dulls demand, but does not kill it.
The doomsayers hang their hats on unemployment, foreclosures, and forbearance, but we've adequately addressed why these should not put an unbearable burden on the market. The impact of the global pandemic on US wage earners has been unequally born by lower-wage earners, far less so by the segment of the population that is likely to be buying homes.
The growth of the buyer pool coming from the millennial demographic comes at a time when home affordability is going to decline. Wage inflation (and in fact, all inflation) is only going to add fuel to the hyperinflation in housing.
Inflation - The Consumer Price Index
Ultimately, I believe we will see the housing market move to a point where demand gets stronger, but the ability to fill that demand will decline because the cost of new homes will not fall within the budgets of a large portion of the buyer pool. This will put more pressure on wages and I think we should prepare to experience a period of heightened inflation in the US.
<img src="https://assets.site-static.com/userfiles/663/image/inflation-graph-consumer-price-index-march-2021.jpg" width="800" height="583" alt="The past 100 years of the consumer price index" title="Inflation - The Consumer Price Index" class="img_box_center" />
The graph above plots the consumer price index in blue for the past 105 years and the yellow dotted line shows the five-year average. The past five years have seen the average flatten slightly, but I suspect five years from now we'll then see far more than just compensation for the flattening.
Elevated costs will likely result in a strong move in new construction towards attached housing and multifamily housing as the primary method to reduce the end-cost to the consumer. This will be a very long-term trend. People who invest in single-family detached homes today will be rewarded with excellent equity growth.
You should expect to see home values rise at a faster rate over the next 24 months than you have ever before seen in a 24-month period of time. Homeownership has many benefits, and for the foreseeable future, the financial benefit might be the greatest of all.2021-03-22T02:51:00-07:002021-10-30T10:25:37-07:00Joe Manausatag:manausa.com,2012-09-20:17092Pending Home Sales Report February 2021<img src="https://assets.site-static.com/userfiles/663/image/pending-home-sales-report-february-2021.jpg" width="800" height="533" alt="A Pending Home Sales Report is a leading indicator of home sales, meaning it gives you earlier insight into housing market activity than you could gain by studying home sales" title="Pending Home Sales Report" class="img_box_center" />A Pending Home Sales Report is a leading indicator of home sales, meaning it gives you earlier insight into housing market activity than you could gain by studying lagging indicators, such as home sales.
The word "pending" is short for "contract pending," thus the Pending Home Sales Report measures contract activity in the market. Outside of detailed supply and demand numbers, there is no better source of current information than one can gather through a thorough examination of new contract activity in the real estate market.
Today's report is a comprehensive review of new contracts and it concludes with a revealing forecast of the coming months in the Tallahassee real estate market.
Prior to our charts and graphs today, take a look at the homes for sale in Tallahassee and notice how the majority of them are already "contract pending" (once you get down below the luxury homes).
Homes For Sale In Tallahassee<br /><br />VIDEO: Pending Home Sales Report
Hot Housing Market Continues
Today's report was assembled from data in the Tallahassee MLS on February 17, 2021. On that date, I retrieved all sales that were closed from January 2019 through the middle of February 2021 and sorted them by contract date (not closing date). Additionally, I added all properties that are under contract and sorted the entire group by the date contracts were written.
What this data represents is all contracts written that are either still working towards closing or ones that have closed escrow (thus the agreements were confirmed).
What this data omits is all contracts that were written and subsequently failed to close. Each month when I assemble a <a href="https://www.manausa.com/blog/tag/pending-home-sale/" title="Reports On Homes Under Contract With Buyers">Pending Home Sales Report</a>, failed contracts are removed so that we are only left with ones waiting to close or those that successfully closed.
Because of this, there is a high likelihood that the most-recent months account for contracts that WILL NOT close, while most distant months will have very few open contracts remaining as all have either closed or have failed to close by now.
In other words, the past will remain pretty much the same, while the present will adjust as time moves forward.
Our first graph plots each month's sales.
<img src="https://assets.site-static.com/userfiles/663/image/pending-home-sales-feb-2021.jpg" width="800" height="506" alt="Graph shows the homes sold and under-contract in February 2021" title="Graph Of Pending Home Sales February 2021" class="img_box_center" />
The number of homes that were put under contract each month are color-coded, with the blue bars showing 2019, the gray bars showing 2020, and the red bars showing 2021 contracts.
Currently, the number of contracts written through the middle of February has grown to just 5% fewer than those written through all of February last year, and we still have the final two weeks of February to go!
Remember, a healthy percentage of these new contracts will not close, so it will take some time to get an accurate evaluation of the market today versus the market at this time last year.
Homebuilders Need To Increase Production
Through all of our inventory reports over the past few years, I have pointed out that we need more homes. We need existing sellers to put their homes on the market, but more importantly, we need builders to deliver additional homes to compensate for the lack of new construction over the past 6 years.
While we did see builders increase production in 2020, it appears as if they are cooling off again. I do not understand why.
<img src="https://assets.site-static.com/userfiles/663/image/new-versus-existing-pending-home-sales-feb-2021.jpg" width="800" height="489" alt="Graph of new versus existing pending home sales February 2021" title="New Contracts By Type February 2021" class="img_box_center" />
The blue bars measure existing home contracts, both pending and closed, by the date the contracts were written while the red measures the same for new home construction.
The red triangles report the percentage of contracts written each month that was new construction while the red line shows the one-year trend of the new construction share of the market.
Last year, 12% of the contracts written were for new homes, but the trend for new home share has been dropping for the past four months. As of right now, 59 new construction homes have gone under contract in 2021 versus the 75 that were written through all of February in 2020, a 21% shortfall though we still have a few weeks left to close the gap in 2021.
In the 1990s, it was not uncommon for 20% of all home sales to be new construction, and back then we did not have an inventory shortage like we do today. Builders today could double production without the risk of creating an oversupply in the market, so long as they pay attention to the areas and price ranges in which they build.
Consider this a plea to all local homebuilders, we need more houses!
Home Prices Move Higher
Using the same data, I calculated the average price of homes under contract in 2021 each month and compared it with the same months in 2020.
<img src="https://assets.site-static.com/userfiles/663/image/average-home-prices-pending-home-sales-feb-2021.jpg" width="800" height="507" alt="Graph shows the price of homes sold and under contract February 2021" title="Graph Of Pending Home Sales Average Prices February 2021" class="img_box_center" />
On average in 2021, buyers have been spending 4% more than they were in 2020.
We have to remember that this is an interest-rate-fueled buying frenzy, and it will slow considerably when interest rates rise. The high-end could go nearly dormant if interest rates rise substantially, and that would slow the average home price growth considerably.
One thing to note though is that the MLS does not reveal the contract price for pending home sales. That means for homes that have closed, we're using the actual sales price, but for those still under contract, we are using the asking price.
This means that when all the homes tracked in this report close, it's likely we'll see the difference between the two years tighten up a little (as the majority of closed prices will likely be at or lower than the corresponding asking prices).<br /><br />Soaring Real Estate Appreciation
This next graph tracks the average home value in 2021 each month and compares it with the same months in 2020.
<img src="https://assets.site-static.com/userfiles/663/image/average-home-values-pending-home-sales-feb-2021.jpg" width="800" height="503" alt="Graph shows the value of homes sold and under contract February 2021" title="Graph Of Pending Home Sales Average Values February 2021" class="img_box_center" />
The graph shows that the appreciation rate each month in early 2021 is averaging just under 9%.
Overall, last year's appreciation rate was close to 9.5%, which is about three times the average we've seen over the past thirty years. With inventory remaining at historic lows, I'm expecting to see appreciation move even higher.
As reported in numerous other market updates, we continue to see low inventory levels in most areas and price ranges below $600K, and this is the biggest contributor to the accelerated appreciation rate.
Now is a great time to sell a home, as buyers want to take advantage of historic low mortgage interest rates before they go away.
Pipeline Shows Strong Buyer Activity
This graph identifies when the current pending and closed contracts were written, with closed contracts shown in blue and pending contracts shown in red. We do this to identify the highest buyer-activity periods and to evaluate the health of the pipeline.
<img src="https://assets.site-static.com/userfiles/663/image/home-sales-by-contract-date-feb-2021.jpg" width="800" height="504" alt="Graph shows the status of homes sold and under contract February 2021" title="Graph Of Pending Home Sales Status Dates February 2021" class="img_box_center" />
By pipeline, I mean the pending home sales and how they are distributed. Since the typical contract closes in 30 to 45 days, we have to be concerned with the number of contracts that appear in our report that are older than 45 days. Currently, about 42% of contracts are older than 45 days, which is more than double what we measured the last time we published a Pending Home Sales Report. This is a sign that there are likely going to be a lot of canceled contracts within the next 30 days.
Right now, the oldest pending home sale goes back to August of 2018, which is likely an MLS maintenance issue that needs to be removed. There are an additional 8 pending contracts that are more than a year old that are likely bogus as well.
Currently, there are 638 Tallahassee homes for sale in the MLS that are under contract with buyers (pending contracts). This represents a growth of nearly 28% since our last Pending Home Sales Report.
This is an abnormal, non-seasonal level of activity during what is normally a time of the year that generates almost the fewest contracts of the year. If we were to add the contracts from December as well, then I would call this very high activity for what is normally the very slowest time of the year.
Based upon the data, combined with what I'm seeing in the field, the only thing that will stop 2021 from posting a record year is the limited supply of homes for sale. The buyers are poised to strike, but we need more homes.
It's important to understand what this means. Yes, demand has grown about 28% from last month, at a time of year where we don't expect much if any growth at all. Demand is amazingly strong and the limited inventory of homes for sale means that relative demand (demand relative to the current supply of homes) has only grown.
Buyers are wanting to take advantage of low mortgage interest rates, so now is the best time to sell a home that I have seen in my 30 years selling homes in Tallahassee.
How January Compared To Last January
The year-over-year home sales graph below has been set up in a different fashion than all previous graphs in this report.
Note that this one shows all homes sold segmented by the date of closing, while the past graphs were assembled based upon contract dates. I include this in the pending home sales report as a bridge to our other market reports and videos that focus on closed sales dates.
<img src="https://assets.site-static.com/userfiles/663/image/year-over-year-home-sales-feb-2021.jpg" width="800" height="473" alt="Year over year home sales surge higher in February 2021" title="Year Over Year Home Sales February 2021" class="img_box_center" />
Five of the past five months have posted gains over the same months in the year prior. In January, the market was up 15% over last January, and that was a strong January as well.
<img src="https://assets.site-static.com/userfiles/663/image/year-to-date-home-sales-graph-feb-2021.jpg" width="800" height="705" alt="Annual home sales in Tallahassee" title="Annual Home Sales Tallahassee (January 2021)" class="img_box_center" />
So how strong was January? The graph above shows that it was the third-best January on record, falling behind only 2005 and 2006 when inorganic demand pushed the market to unsustainable highs.
So should we be worried about the sustainability of the current market?
In short, yes and no. Yes, we need to be concerned about how the market will cool when mortgage interest rates rise, but no, the number of sales occurring right now is very much an acceptable level when you consider the population growth in Tallahassee since the market peaked 15 years ago.
As an over-simplification, we are bigger now so we should expect more buyers in the market. Additionally, we are not seeing the signs of a housing bubble like we did in 2005, where inventory levels started to rise. Today, inventory levels are falling, a sign that more homes are needed.
Homeowners who have been considering a move need to take note. Current conditions are the best I've ever seen for getting top dollar for your home while also selling it within a predictable time schedule.
I am confident that the seller's market conditions will continue for the foreseeable future, but I do believe rising mortgage interest rates will eventually reduce the advantage that current home sellers enjoy.
Any student of interest rate history will tell you that mortgage interest rates are going to rise. Nobody knows when, but certainly, rates will not stay this low forever. When mortgage interest rates do rise, demand at the top of the market will erode significantly and decline throughout the lower price ranges.
If you know you want to move, you should strongly consider doing so immediately while both inventories and mortgage interest rates are each working to your advantage.
Regardless of what you decide, we'll be here to keep you up to date on the pending home sales in the Tallahassee real estate market.2021-02-22T03:50:00-07:002021-02-23T08:36:42-07:00Joe Manausatag:manausa.com,2012-09-20:16833Monthly Housing Report February 2021<img src="https://assets.site-static.com/userfiles/663/image/housing-report-february-2021.jpg" width="800" height="533" alt="January is over, February is here, so it must be time for my monthly real estate market update" title="February Housing Market Report" class="img_box_center" />January is over, February is half-done, and 2021 has already notched the first 1/8th of the year. So how are home sales in Tallahassee?
Follow along as I walk you through current housing market conditions, mortgage interest rates, and home sales trends in 2021 when compared to previous years, each through January. Finally, my conclusion will give you an idea of where the market is heading in 2021, and which factors will decide its future.
Let's start the report with a quick look at the current listings of homes 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.
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 these listings in my monthly report so that our readers can observe the record-high rate of listings already under contract with buyers.<br /><br />VIDEO: Housing Market Update
Year Over Year Home Sales Rise (v 5.0)
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 year-over-year home sales.
<img src="https://assets.site-static.com/userfiles/663/image/year-over-year-home-sales-feb-2021.png" width="743" height="647" alt="Year Over Year Home Sales Report Tallahassee" title="Year Over Year Home Sales" class="img_box_center" />
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 year-over-year home sales. Year over year home sales comparisons provide insight into the market changes by removing the seasonal changes in the market.
For example, we only compare January to January or June to June, thus the seasonal changes in real estate are not a factor.
Year over year home sales rose 15% in January, registering the fifth-straight month of gains and six out of the past seven months.
The year-end rally that was fueled by buyers who opted out of the market when the COVID pandemic first hit Tallahassee in the first and second quarter continued through January, and if we gain enough inventory, we should see it extend even further. Low mortgage interest rates have buyers chomping at the bit to get into a home before rates begin to rise.
Bidding wars on the relatively few homes for sale will only escalate now that we have seen the inventory reduce to a new all-time low.
Year To Date Home Sales
This next graph shows the number of homes sold during the first month in each of the past 20 years.
<img src="https://assets.site-static.com/userfiles/663/image/year-to-date-home-sales-graph-feb-2021.jpg" width="800" height="705" alt="Year To Date Home Sales Report Tallahassee" title="Year To Date Home Sales" class="img_box_center" />
2021 has started the year strong, with the number of homes sold sitting as the third-best year ever, trailing only 2005 and 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, <a href="https://www.manausa.com/blog/housing-bubble-2021/" title="Housing Bubble 2021">click here</a> to see a recent report about the potential for a new housing bubble).
Mortgage Interest Rates Remain Near Low
The next graph in today's plots more than 50 years' worth of average monthly mortgage interest rates, and the news is nothing but good for both buyers and sellers.
<img src="https://assets.site-static.com/userfiles/663/image/mortgage-interest-rate-history-feb-2021.jpg" width="800" height="584" alt="Mortgage Interest Rates Graph February 2021" title="Mortgage Interest Rates Graph" class="img_box_center" />
Rates ticked up minorly last month but still remain well below 3%. Since 1971, we've seen rates go as high as 18.45% and as low as 2.77%. During these fifty years, the average rate has come down to just under 8%, which is more than 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 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.
<img src="https://assets.site-static.com/userfiles/663/image/current-listing-status-feb-2021.jpg" width="800" height="583" alt="Status Of Current Home Listings February 2021" title="Status Of Current Home Listings" class="img_box_center" />
Nearly 3 of every 5 homes listed for sale right now are already under contract. The green line in the graph above shows that 56% 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 47%.
We are expecting more sellers to enter the market over the next six months, but it is doubtful we will see much of a dip in this ratio. And 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 1,052 homes for sale in Leon County, but only 458 of them are really available as buyers have the other 549 already under contract.
So a buyer today has just 458 homes available to purchase. At this time in 2011, there were more than 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 fast 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 be heartbroken. You will lose out on the home you love, only to find homes more expensive once you get your affairs together.
Smart sellers are taking cash offers (or offers with limited financing contingencies), so forget about getting your dream home with a contract that asks the sellers to wait for you to find financing. Again, get your loan documents completed before looking at homes, it's the only way to entice a seller to take your offer.
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.<br /><br />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.
<img src="https://assets.site-static.com/userfiles/663/image/annual-real-estate-appreciation-feb-2021.jpg" width="800" height="516" alt="Annual Real Estate Appreciation Tallahassee Florida" title="Annual Real Estate Appreciation" class="img_box_center" />
For the first ten or more years of my career, we saw real estate 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 the rampant appreciation that began last year has continued. In an earlier market report, I had forecast double-digit appreciation for 2021. Through 1/8th of the year, appreciation is more than 2% (an annualized rate of more than 17%).
If builders don't ramp up production for 2021, we could see existing home values rise an alarming 20% in 2021. To put that into perspective, that means a $250K home purchased in December 2020 will be worth more than $300K at the end of 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.
<img src="https://assets.site-static.com/userfiles/663/image/median-home-price-feb-2021.jpg" width="800" height="521" alt="Median Home Price Tallahassee Florida February 2021" title="Median Home Price" class="img_box_center" />
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 each sales price).
This graph shows the rapid rise in home prices. The median home price for existing homes is $210,000, for new homes the median has shot above $300,000, and overall, the median home price in Tallahassee is $233,000. That means the middle of the market is 14.8% higher today than when we began last 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 move lower to continue covering the rising cost of homes).
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.
<img src="https://assets.site-static.com/userfiles/663/image/percent-homes-selling-each-month-feb-2021.jpg" width="800" height="583" alt="Percentage Of Homes For Sale Under Contract February 2021" title="Percentage Of Homes For Sale Under Contract" class="img_box_center" />
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 (17%).
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.
Just as a final thought on the scarcity of available homes, we typically see the lowest conversion numbers in this graph in either January or February. No, we didn't see a sub-17% number in January, rather we saw an explosive 25% of the inventory sell last month and we'll see something similar in February as well.
The Take Away From This Month's Market Report
The housing market is insanely one-sided right now, with far more buyers than sellers. If you have a home to sell and market it correctly, you will get offers on the first day your home is available to be seen. Ensure your broker uses an <a href="https://www.manausa.com/how-to-sell-your-house/" title="Sell Home 2021">omnichannel marketing plan with an emphasis on pre-marketing</a> and you'll be able to choose from the multiple offers that you receive.
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 (setting an all-time high in 2020). The top-end of the market is most susceptible to collapse due to rising mortgage interest rates, so high-end sellers need to "make hay while the sun is shining!).
So long as rates 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 over the next few months (as we saw a tiny move higher in January), but forecasting the future of mortgage interest rates is highly speculative.
Real estate 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 financed at a rate below 3% for a 30-year loan!2021-02-15T03:51:00-07:002021-02-20T05:25:33-07:00Joe Manausatag:manausa.com,2012-09-20:16830Real Estate Supply And Demand Update February 2021<img src="https://assets.site-static.com/userfiles/663/image/real-estate-supply-report-february-2021.jpg" width="800" height="533" alt="Inventory of homes for sale in Tallahassee February 2021" title="New Listings Report February 2021" class="img_box_center" />
2020 is finally far back in the rearview mirror and it's time to evaluate the inventory of homes for sale in Tallahassee.
During our last inventory update, we advised that there were far too few homes for sale to satisfy the current level of demand. Today, I am unhappy to report that the inventory has dropped yet again.
Today’s report focuses on the supply-side of the housing market, looking at what’s coming in and what present levels mean for home values and buyer opportunities today.
First, here's a peek at the newest listings to enter the market, sorted by the date they hit the market, newest first. Of course, you can re-sort them if you like.
New Listings In Tallahassee<br /><br />A Scary Picture Of What Buyers Face Today
This graph is great news for people contemplating selling a home, while it is a shocking reveal to buyers who want to be active in the market.
<img src="https://assets.site-static.com/userfiles/663/image/Status-existing-listings-feb-2021.jpg" width="800" height="583" alt="Graph shows the status of active listings in the Tallahassee MLS" title="Status Of Active Listings in Tallahassee" class="img_box_center" />
What it shows are all the listings currently for sale in Tallahassee, separated into two different stages. Homes for sale that are already under contract with buyers are shown in blue, while those for sale not yet under contract with buyers are shown in red.
For the first time ever, more than half of all current listings on the market are already under contract with buyers. That's right, 56% of active listings have contracts today versus just 41% just one year ago.
To make this clear, it means that when buyers go online and look at homes for sale, nearly 2 out of every 3 listings is not really available. The supply of homes for sale is far too low for buyers to be able to casually shop for a home. And the situation is getting worse, not better.
The dashed green line plots the 12-month average of the “under-contract” trend, and we’re rapidly seeing this approach 50%. We had never seen this trend hit 40% until last year, and now it is exploding through the roof.
Let’s take an in-depth look at the supply side of the housing market and examine exactly what's happening that is causing the decline in the inventory of homes for sale.
Year Over Year Fresh Listings Fall
After five consecutive months of gains, the number of fresh listings entering the market fell by 3% in December and then by a whopping 25% in January. Considering 2021 had begun the year with too few listings, this is not a good way to find a market correction.
<img src="https://assets.site-static.com/userfiles/663/image/year-over-year-listings-february-2021.jpg" width="800" height="583" alt="Graph of year over year fresh new listings in Tallahassee" title="Year Over Year New Listings" class="img_box_center" />
The graph above shows a comparison of how each month fared (percentage-wise) compared to the same month in the prior year for fresh new listings entering the MLS.
I use the term “fresh” to describe homes listed for sale that were not previously listed. These are homes that are truly new to the market, not merely old inventory that was canceled and relisted by the agent or a new agent.
2021 has started off with 25% fewer fresh existing listings than what entered the market in January of last year, so this is not a good sign for buyers seeking more choices when shopping for a home. On the other hand, it is great news for a seller wanting to top dollar when selling a home.
From a seasonality standpoint, I am expecting a "normal" year in 2021, where most listings enter the market from mid-February through July. Last year produced very different results than what we normally see. We saw 2020 finish strong after a terrible 2nd quarter which brought Tallahassee COVID-19 and a decline in new listings.<br /><br />Fresh Inventory Report
While the last graph showed a month to month comparison of fresh new listings, this one shows fresh listings in January of each year.
We see that the number of fresh (existing home) listings fell 23% in January when compared to January of 2020. So how bad was January's new listings count? This makes 2021 the worst year in the past 8 when ranking years by the number of fresh new listings entering the market.
<img src="https://assets.site-static.com/userfiles/663/image/existing-real-estate-listings-feb-2021.jpg" width="800" height="548" alt="graph shows the number of fresh existing homes listed for sale" title="Fresh Existing Listings In Tallahassee" class="img_box_center" />
The housing market started the year with too few homes for sale, so the reduction in fresh listings, coupled with heightened demand, has pushed prices higher and created pent-up demand for homes.
You might believe this is "good news" for sellers as their homes are now worth more, you also have to remember that most sellers are going to be buying another home in the same market (with the same soaring prices).
Of course, the existing home sales market does not stand alone. We also need to examine what the builders have been doing.
Fresh New Construction Listings
Similar to the previous graph that showed fresh listings for the existing homes market, this graph shows freshly listed new construction homes.
<img src="https://assets.site-static.com/userfiles/663/image/new-construction-listings-feb-2021.jpg" width="800" height="624" alt="The number of new construction homes listed for sale in Tallahassee over time" title="Fresh New Construction Listings In Tallahassee" class="img_box_center" />
Homebuilders did well last year to raise construction activity, but they fell woefully short (by more than 1/2) of what the market needed. I'm hoping the decline in new construction listings in January is merely a blip and we'll see them move back towards growth. We need local builders to be producing more homes.
If builders do not step up the pace soon, hyperinflation will take over the housing market and we'll see appreciation move far higher than the 9.3% recorded last year. To put this into perspective, the normal rate of appreciation in Tallahassee is just over 3%.
Back in the 1990s, builders were bringing more than 1,000 new homes per year to the market. Right now, with a large shortage of homes, they should be building about 1,500 per year and monitoring the supply and demand numbers to ensure that they're not building too many at any given price point.
That means the 41 new listings in January could really have been 125, so new construction activity was only a third of what was needed!
Slow production means that builders missed an opportunity to sell an additional 600 to 900 homes in 2020 and 80 fewer in January alone. The void that these missing homes did not fill will only disfigure our housing market further in 2021.
To get the global view of the supply side of our market, we combine new homes with used homes which produces the following graph detailing the total number of fresh new listings that have entered the market through November.
Fresh New Listings In Tallahassee
This graph reveals that the combination of builder homes and existing homes makes 2021 the 2nd-worst year (of the past 8 years) for new inventory. Remember, today's sky-high demand has created optimal market conditions for sellers, so there is no reason for incoming listings to be so low.
<img src="https://assets.site-static.com/userfiles/663/image/new-real-estate-listings-feb-2021.jpg" width="800" height="624" alt="Tallahassee real estate market new listings report" title="Fresh New Listings" class="img_box_center" />
Of course, with the influx of new homes dropping, the relative supply of homes for sale has fallen even lower. So what does that mean?
The Relative Supply Of Homes For Sale In Tallahassee
This table measures the supply of homes for sale, relative to the current rate of demand. The resulting number for each area and price-range is measured in "months of supply," and what makes the market balanced is a measure of 6.0.
When the relative supply drops below 6 months of supply, we call this a seller's market as there are more buyers than sellers. When the numbers rise above 6, we refer to that as a buyer's market, as there are more sellers than buyers. Red shaded areas reveal a seller's market condition.
<img src="https://assets.site-static.com/userfiles/663/image/Relative%20Months%20Of%20Supply%20Of%20Homes%20Feb-2021.jpg" width="519" height="402" alt="the relative supply of homes for sale has fallen even lower" title="Relative Supply Of Homes For Sale" class="img_box_center" />
The table clearly shows that the supply of homes for sale, relative to the current hot rate of demand, is lower than ever. With the decline of fresh new listings combined with the growth of the buyer pool, the months of supply of homes for sale is terribly low. This table shows you why 57% of our current listings are already under contract with buyers.
For every buyer that closed on a home in January, there was more than one buyer that missed out on the chance to buy a home. The closings could have been more than double the rate closed had there been more available listings.
We need builders to step up and produce inventory in the areas and price ranges shaded in red if they are capable. Obviously, we're not going to see a builder bring in new units under $100K in NE Tallahassee, but there are a lot of areas here that should be pursued.
If I were a builder and wanted to ensure that I did not build homes that the market does not need, I would look at the red-shaded areas with a value below 5 months of supply. The market is demanding these homes, why not build and sell them?
If you are a local home builder who would like analytical guidance on where and what to build, I’m happy to help, just give me a call.
For non-builders, you should know that this is the hottest seller's market ever, so if you've been thinking about moving, it's time to act.
This is the strongest seller's market ever recorded in Tallahassee, but understand that time is working against you should you decide to wait.
Right now, mortgage interest rates are low and you have sky-high demand for your home. But when mortgage interest rates begin to rise, demand will soften in the middle of the market, and nearly stop at the top of the market.
Rising mortgage interest rates will not reduce the value of your home, but it will increase your monthly payment on the home you buy next.
If you plan on buying a home after you sell your current one, take advantage of low mortgage interest rates, or just take advantage of the strong demand that low rates have created.
Don't be the one among your group of friends who in the future says, "you know, I should have taken advantage of those mortgage interest rates back in 2020 when they were so low!"2021-02-08T03:55:00-07:002021-03-22T08:39:49-07:00Joe Manausatag:manausa.com,2012-09-20:16920SHOCKING! Here's Where Home Prices & Mortgage Payments Are Heading<img src="https://assets.site-static.com/userfiles/663/image/home-prices-mortgage-rates.jpg" width="800" height="533" alt="SHOCKING! Here's Where Home Prices & Mortgage Payments Are Heading" title="Home Prices & Mortgage Payments" class="img_box_center" />There is a pair of opposing market forces battling it out today that we are monitoring in order to determine how affordable homes will be in 2021 and beyond.
On one hand, you have historic-low mortgage interest rates, but on the other hand, you've got soaring home prices.
The former makes homes more affordable, while the latter has the opposite effect. Today's long-term housing market forecast paints a scary picture of what is certain to come.
Median Homes For Sale In Tallahassee
The following homes for sale in Tallahassee are priced very close to the median of the market, giving our readers a feel for the average home revealed in our report.<br /><br />Video Report With Animation
Tallahassee Home Affordability Graph
This graph shows the relationship between home prices and monthly mortgage payments (principal and interest) over time.
<img src="https://assets.site-static.com/userfiles/663/image/price-versus-payment-home-affordability.jpg" width="800" height="583" alt="graph shows the relationship between home prices and monthly mortgage payments (principle and interest) over time" title="Tallahassee Home Affordability Graph" class="img_box_center" />
The graph above plots the average home price in red (measured on the left vertical axis) and the corresponding average mortgage payment in blue (right vertical axis). If there were not such a thing as housing market cycles and mortgage interest rate fluctuations, we would expect the blue line to rise with inflation over time.
Alas, both market cycles and interest rate changes are a fact of life. By plotting them together, we can see what the average homeowner in Tallahassee has paid (principal and interest) for the past thirty years.
So just how "affordable" are homes today, and what should we expect moving forward? Let's just say that what I share below means that you have been forewarned and advised on how to proceed!<br /><br />What Home Affordability Analysis Tells Us
If you think that homes are expensive today, then you have not been viewing the real estate market through my crystal ball. Consider this:
From January 1991 through December 2020, the average home price went from $75K to $239K, an annual average change of 3.94%. During that same period of time, the average monthly mortgage payment moved from $582 to $971, an annual change of 1.72%. In fact, roughly 6 of the past 30 years have seen higher payments than what today's buyers are finding, so without even looking forward one should understand that this is not a bad time to buy a home.
But when we look forward, we see ample evidence that home affordability is about to be blown away.
Future Market Forces Impacting Home Affordability
If we plot a graph of market drivers, a simple yet startling conclusion becomes clear.
<img src="https://assets.site-static.com/userfiles/663/image/inflation-wages-home-prices.jpg" width="800" height="521" alt="If we plot a graph of market drivers, a simple yet startling conclusion becomes clear" title="Future Market Forces Impacting Home Affordability" class="img_box_center" />
When viewing the graph, note that the long-term inflation trend (blue dotted line) is tracking with the long-term home price trend (red dotted line). The yellow dotted line represents where we are now.
The gray area explodes 75% higher starting this year, as the minimum wage increase has been voted upon and approved. This will have an impact on every cost-item in the construction of new homes with the likely exception of land and development.
Because of the huge increase in wage growth, I project the future rate of home price growth to be higher than what we have seen in the past. Furthermore, I believe we should expect inflation to grow as well, though this might not be relevant to real estate prices.
Mortgage Interest Rates Will Rise Again
The average mortgage interest rate over the past 50 years is just under 8%, down to well under 3% today and as high as 18.5% in 1981. In fact, were it not for the low rates of the past ten years, the long-term average would be closer to 9%.
While I would love to see low-interest rates last forever, that wishful thinking could lead me to great disappointment sometime in the next few (years?). Mortgage interest rates will rise again.
So let's take a look at that first graph again, but this time with a conservative estimate of increased prices and increased mortgage interest rates. While my time estimates are purely speculative, history tells us this will happen at some point relatively soon.
<img src="https://assets.site-static.com/userfiles/663/image/home-price-payment-forecast-jan-2021.jpg" width="800" height="606" alt="Forecast of future home prices and the monthly mortgage payment buyers will carry" title="Forecast Home Prices And Monthly Payments" />
The graph above shows a forecast for future home prices (red) and the monthly mortgage payment buyers will get when buying these homes (solid blue). If you live with the hopes that the government will step in and keep mortgage interest rates low for the next 20 years, then you can just follow the blue dotted line.
Of course, there will be cycles that come and we won't see the perfectly straight lines that the graph produces, but from my experience, we will get where it's going. And I believe this is conservative.
Look at the solid blue line in the graph. Falling interest rates have kept mortgage payments (over the past ten years) at or lower than what people were paying in the 1990s. Do we really think this can last forever?
Look at home affordability today (yellow dashed line) and recognize why now is the best time to buy a home that you'll likely encounter ever again. Historic low mortgage interest rates, coupled with the relatively low price of homes gives today's buyer an advantage.
Even if you believe a market crash is in the future (near or far), do you really think we'll see interest rates drop below 2.5% to counter it? We didn't see that happen following the 2006 collapse.
Whether moving up or moving down, do it today so that you can lock in these crazy-low, history-changing mortgage interest rates, the "future you" will love you for it!2021-02-01T03:51:00-07:002021-07-18T10:20:21-07:00Joe Manausatag:manausa.com,2012-09-20:16501Luxury Homes Report January 2021<img src="https://assets.site-static.com/userfiles/663/image/luxury-homes-report-january-2021.jpg" width="800" height="533" alt="Full report on luxury home sales in Tallahassee through January 2021" luxury="" home="" has="" many="" meanings="" to="" different="" people="" as="" with="" things="" is="" in="" the="" eye="" of="" beholder="" title="Luxury Homes Sales Report January 2021" class="img_box_center" />
Welcome to the first luxury home sales report for 2021! We identify "luxury homes" as those that sold in the top 1% of all home sales by price, and for the 2020 calendar year, that price begins at $800,000.
In real estate, as in many things, luxury is in the eye of the beholder. When it comes to homes, luxury is often defined by lifestyle, location, amenities, land size, as well as the physical size of a home. In order to produce a report on the luxury homes market, I have assembled all home sales in the top 1% of the market, and that’s where the $800K price comes into play.
So how is the luxury homes market in the first month of 2021, and where do we see it heading in the near future?
These are the questions that we have answered in this month’s luxury homes market update.
Luxury Homes For Sale In Tallahassee
The following list of homes for sale includes all single-family detached homes priced within the top 1% of the market.<br /><br />Video Report
How 2020 Ranked For Homes Sold
The first graph in today's report was created from home sales in Tallahassee each year, beginning in 2003 and ending in 2020.
<img src="https://assets.site-static.com/userfiles/663/image/annual-home-sales-ranking-jan-2021.jpg" width="800" height="608" alt="How 2020 Ranked For Home Sales By Price Range" title="Home Sales Rank By Year" class="img_box_center" />
It ranks each home price segment from 1 to 18 based upon how well 2020 performed (with a rank of "1" if 2020 had the most home sales down to "18" if 2020 had 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.
2020 was a very strong year. We can see homes priced more than $1M enjoyed the best year ever (they ranked #1). The same is true for all homes priced in to top 1%, as well as all homes priced all the way down to $200K. Simply put, 2020 was the best year on record, not just for luxury homes, but for all homes priced above $200K.
Our next graph includes just the top 1% of the Tallahassee real estate market.<br /><br />Luxury Home Sales Post Record Year
If you were concerned that the pandemic would slow the luxury homes market, the graph below makes it clear it did not.
<img src="https://assets.site-static.com/userfiles/663/image/luxury-home-sales-by-price-range-jan-2021.jpg" width="800" height="534" alt="Cumulative view of luxury home sales in Tallahassee" title="Luxury Home Sales By Price Range" class="img_box_center" />
As we forecast in our most recent <a href="https://www.manausa.com/blog/tag/luxury-homes/" title="Tallahassee Luxury Home Sales Report">luxury homes report</a>, 2020 finished strong and each price point above $800,000 posted record-year results.
Why Were Luxury Home Sales Strong In 2020
One might think that luxury home sales were strong due to historic-low mortgage interest rates, but that was not entirely the case.
<img src="https://assets.site-static.com/userfiles/663/image/how-luxury-homes-were-purchased-jan-2021.jpg" width="800" height="501" alt="Source of money for people buying luxury homes in Tallahassee" title="How Luxury Homes Were Purchased In 2020" class="img_box_center" />
The graph above shows the percentage of luxury home buyers financing their purchases. Even as rates kept setting new record lows in 2020, we observed a rise in the number of people paying cash for a luxury home.
The solid green line shows the percentage of people who financed their luxury home purchases each year. With relatively few sales in the top 1%, it's not surprising that the results bounce around from year to year.
In 2020, 13 buyers paid cash for their luxury home, representing 25% of all luxury purchases. This was the most cash purchases of luxury homes ever recorded.
This suggests that it is more than just low mortgage interest rates moving the luxury homes market. Luxury home sellers should take note.
This is one of the best markets ever for selling a luxury home. Buyers are out shopping. Both those with cash and those who are financing the sale. Take advantage of these conditions and get your luxury home sold before market conditions swing in the other direction.
How Long Does It Take To Sell A Luxury Home?
The next two graphs require an extensive analysis of the MLS data to produce and cannot be gleaned from an automated MLS report. We did the work to ensure that time on the market and initial asking prices accurately reflect what truly occurred each year.
<img src="https://assets.site-static.com/userfiles/663/image/how-long-does-it-take-to-sell-a-luxury-home-jan-2021.jpg" width="800" height="560" alt="Accurate market time analysis for luxury homes January 2021" title="How Long Does It Take To Sell A Luxury Home?" class="img_box_center" />
In the graph above, all luxury home sales are segmented into 2 groups each year. The green group includes all luxury home sales where the home was sold by the first broker the seller hired to sell the home. The black group shows those that sold with a second or later real estate company.
The first thing to note is that luxury homeowners that successfully sold were on the market a lot longer than what unaudited Realtor reports would show. The MLS allows its users to manipulate listings to always appear fresh, but the reality is that many have been listed numerous times. Our report scrubbed the bogus versions and compared the final sales date with the initial listing date.
As you can see in the graph, sellers who successfully sold in 2020 with their first real estate agent took nearly 8 months to sell, while those that sold with a second (or later agent) had an estimated sales date more than 14 months after their initial listing date.
If you are planning on selling a luxury home, make the effort to choose an agent that will provide an accurate valuation of your home and get you sold for top dollar. It does not take a year (or more) to sell a luxury home in Tallahassee.
How Much Are Luxury Home Sellers Receiving?
When we compare final sales prices to initial asking prices, it's fairly obvious the luxury home sellers are not getting the price that they had hoped to receive when they first hit the market.
<img src="https://assets.site-static.com/userfiles/663/image/what-percent-of-asking-price-luxury-home-sellers-received-jan-2021.jpg" width="800" height="603" alt="Graph that compares the final sales price with the initial asking price of luxury homes" title="How Much Are Luxury Home Sellers Receiving In Janaury 2021?" class="img_box_center" />
As with the previous graph, this graph shows fresh listings in green (homes listed with a first agent), and stale listings in black (those listed with a 2nd or later agent).
In 2020, luxury home sellers who sold with their first agent received 94% of their initial asking price, while those listed with a second or later agent only received 82% of their initial asking price. That extra 12% is a six-figure penalty for choosing the incorrect first agent!
If you want to sell a luxury home, make sure you choose the agent that spends the marketing dollars necessary to attract ALL potential buyers to your home. As you can tell from the graph above, it matters!
Future Luxury Homes Market
It is likely we will see a decline in the number of cash buyers in the luxury homes market in 2021, as last year's record-setting figure took many of the prospects out of the buyer pool. So that means we will be relying heavily on those buyers who finance their purchases.
Fortunately for luxury home sellers, mortgage rates are near or at all-time lows. In fact, 2021 will start the year nearly a full percent lower than where 2020 began, so we expect demand for luxury homes to remain strong for the foreseeable future.
If you have a luxury home to sell, call us immediately. We can help you determine the best asking price for your home, pre-market it to all current luxury home buyers, and help you get top dollar for your home before the luxury homes market returns to normal.
<a id="List"></a>Luxury Homes Sales In Tallahassee
The following table shows all luxury homes sold in Tallahassee going back to 1991. You can sort the table by any field in the table heading.
{si-table-id=120}2021-01-25T03:57:00-07:002021-02-20T05:26:49-07:00Joe Manausatag:manausa.com,2012-09-20:16500Real Estate Inventory Report January 2021<img src="https://assets.site-static.com/userfiles/663/image/real-estate-inventory-jan-2021.png" width="800" height="533" alt="Inventory of homes for sale in Tallahassee January 2021" title="Real Estate Inventory Report January 2021" class="img_box_center" />
If you are an active buyer in the Tallahassee real estate market, then you know the supply of homes for sale is low.
And when I say low, I mean the supply of homes is at an all-time low, with very little to choose from at prices below $550,000. And this is not a temporary seasonal issue, the supply of homes has been far too low for going on 4 straight years.
Today’s report focuses on the supply-side of the housing market, looking at what’s coming in and what present levels mean for home values and buyer opportunities today.
Let's start with a list of all active listings, and you'll quickly note that many are already under contract with other buyers. The report that follows explains why this is so.
Homes For Sale In Tallahassee<br /><br />Video: Real Estate Inventory Update
Real Estate Inventory & Seasonality
Today's report focuses on the current supply of homes for sale and comparing it with the past. I do want to make an important point clear before we dig into the data.
The inventory of homes for sale is usually at its lowest for the year in early January, but that is not a factor in today's report. I have removed the seasonal impact of seller activity by using annualized data for the entirety of this report.
This means that we do not ascribe today's conditions as merely the result of this being January. Today's real estate supply is incredibly low, and it will lead to some problems if we do nothing about it.
Year Over Year Fresh Listings Fall
For the first time in six months, the number of fresh new listings entering the market declined when compared with the same month in the year prior. Considering that demand remained super-hot (even for December), the result was a decline in the relative supply of homes for sale.
<img src="https://assets.site-static.com/userfiles/663/image/real-estate-supply-january-2021.png" width="800" height="583" alt="Graph of year over year fresh new listings in Tallahassee" title="Year Over Year New Listings" class="img_box_center" />
The graph above shows a comparison of how each month fared (percentage-wise) compared to the same month in the prior year for fresh new listings entering the MLS.
I use the term “fresh” to describe homes listed for sale that were not previously listed. These are homes that are truly new to the market, not merely old inventory that was canceled and relisted by the agent or a new agent.
Even though eight of the twelve months last year posted gains, the overall number of new listings fell when compared to 2019. When you consider that the year started off under-supplied, then you can understand why it is so hard to find a home right now.
I attributed the huge declines posted in April, May, and June, to the global pandemic that first started impacting Tallahassee in March. I believe many potential sellers decided not to move due to concerns about the economy as well as their health and safety.
We had hoped that many of these reluctant sellers would come into the market by year's end, and most did, but there is still a small group of these prospective sellers who could represent growth in the inventory in 2021.
I'm expecting historical seasonality to return to the supply-side of the real estate market this year, as low mortgage interest rates have helped the housing market overcome the fear and the resulting indecision caused by the pandemic in 2020.<br /><br />Fresh Existing-Home Listings
While the last graph showed a month to month comparison of all fresh new listings, this graph shows cumulative fresh existing-home listings each year.
We see that the number of fresh (existing home) listings declined by about 7% in 2020 when compared to 2019. Even though 2020 finished off as the middle-ranking year for fresh existing-home inventory coming into the market, one must remember that sales were higher than in any of the seven years shown in the graph.
<img src="https://assets.site-static.com/userfiles/663/image/new-existing-home-listings-january-2021.png" width="800" height="548" alt="graph shows the number of fresh existing homes listed for sale" title="Fresh Existing Listings In Tallahassee" class="img_box_center" />
The housing market started the year with too few homes for sale, so the reduction in fresh listings, coupled with heightened demand, has pushed prices and values higher and created pent-up demand for homes.
While this might seem like "good news" for sellers as their homes are now worth more, you also have to remember that most sellers are going to be buying another home in the same market (with the same soaring prices).
Of course, the existing home sales market represents just one source of new listings. We also need to examine new builder inventory during the same time periods.
More (But Not Enough) New Construction
Similar to the previous graph that showed fresh listings for the existing homes market, the following graph shows freshly listed new construction homes.
<img src="https://assets.site-static.com/userfiles/663/image/new-construction-home-listings-january-2021.png" width="800" height="624" alt="The number of new construction homes listed for sale in Tallahassee over time" title="Fresh New Construction Listings In Tallahassee" class="img_box_center" />
Homebuilders picked up the pace of building new homes in 2020, but they failed to produce enough homes to provide for today's current demand.
Back in the 1990s, builders were bringing more than 1,000 new homes per year to the market. Right now, with a large shortage of homes, they should be building about 1,500 per year and monitoring the supply and demand numbers to ensure that they're not building too many at any given price point.
This means that builders missed an opportunity to sell an additional 600 to 900 homes in 2020 (which is more new homes than actually sold, meaning builders produced less than one-half of the homes that the market would bear). The void that these missing homes did not fill is the primary reason we've reached a historic-low amount of homes for sale in 2021.
To get the global view of the supply side of our market, we combine new homes with used homes which produces the following graph detailing the total number of fresh new listings that have entered the market each year.
New Listings In Tallahassee Come Up Short
This graph reveals that the combination of builder homes and existing homes entering the market in 2020 made it the 3rd-best year (of the past 7 years) for new inventory. Remember, today's sky-high demand has created optimal market conditions for sellers.
<img src="https://assets.site-static.com/userfiles/663/image/new-home-listings-january-2021.png" width="800" height="624" alt="Tallahassee real estate market new listings report" title="Fresh New Listings" class="img_box_center" />
Despite this influx of new homes, the relative supply of homes for sale has fallen even lower. So what does that mean?
The Relative Supply Of Homes Continues To Drop
This table measures the supply of homes for sale, relative to the current rate of demand. The resulting number for each area and price-range is measured in "months of supply," and what makes the market balanced is a measure of 6.0.
When the relative supply drops below 6 months of supply, we call this a seller's market as there are more buyers than sellers. When the numbers rise above 6, we refer to that as a buyer's market, as there are more sellers than buyers. Red shaded areas reveal a seller's market condition.
<img src="https://assets.site-static.com/userfiles/663/image/months-of-supply-of-homes-for-sale-january-2021.png" width="534" height="413" alt="the relative supply of homes for sale has fallen even lower" title="Relative Supply Of Homes For Sale" class="img_box_center" style="display: block; margin-left: auto; margin-right: auto;" />
As you can see in this table, the supply of homes for sale, relative to the current heightened rate of demand, is lower than ever. Even with more new homes and a decent amount of existing homes, the growth of the buyer pool has reduced the months of supply of homes for sale.
For every buyer that closed on a home in December, there was more than one buyer that missed out on the chance to buy a home. The closings would have been more than double the rate closed had there been more available listings.
We need builders to step up and produce inventory in the areas and price ranges shaded in red if they are capable. Obviously, we're not going to see a builder bring in new units under $100K in NE Tallahassee, but there are a lot of areas here that should be pursued.
Just in NE Tallahassee alone, there are less than five months of supply of homes for sale at all prices below $550K! One would think there would be ways of producing new homes in NE Tallahassee for $300K to $500K! Remember, this report includes all single-family detached homes, townhomes, and condominiums, so it's not like demand is limited to single-family detached homes on an acre!
If I were a builder and wanted to ensure that I did not build homes that the market does not need, I would look at the red-shaded areas with a value below 4 months of supply. The market is screaming for these homes, why not build and sell them?
If you are a local home builder who would like analytical guidance on where and what to build, I’m happy to help, just give me a call.
For non-builders, you should know that this is the hottest seller's market ever, so if you've been thinking about moving, it's time to act.
If you are a homeowner who has been "sitting on the fence," unsure about selling your home during the pandemic, please reach out to us and let us explain how we can sell your home safely and for top dollar!
Sellers today can enjoy the strongest seller's market ever recorded in Tallahassee, but they need to understand that time might be working against them.
Right now, mortgage interest rates are low and you have sky-high demand for your home. But when mortgage interest rates begin to rise, demand will soften in the middle of the market, and nearly stop at the top of the market.
Rising mortgage interest rates will not likely reduce the value of your home, but it will increase your monthly payment on the home you buy next.
If you plan on buying a home after you sell your current one, take advantage of low mortgage interest rates, or just take advantage of the strong demand that low rates have created.
Don't let the "future you" regret not having taken advantage of today's low mortgage interest rates. Sell your home and buy your next one, locking in these incredible rates.2021-01-18T03:54:00-07:002021-02-20T05:26:58-07:00Joe Manausatag:manausa.com,2012-09-20:16141Real Estate Market Forecast For 2021<img src="https://assets.site-static.com/userfiles/663/image/real-estate-forecast-2021.jpg" width="880" height="587" alt="his report will begin with a summary of what transpired in 2020 and then will conclude with a forecast for home sales in 2021" title="Real Estate Market Forecast For 2021" class="img_box_center" />The housing market in 2020 performed as expected, despite a global pandemic that slowed Summer sales. The Fed's move to drop interest rates restored demand, and by the end of the year, the market was up a solid 2% over the previous year.
As we start the 2021 year, the housing market continues to have interest-rate fueled heightened demand, but historic-low inventory levels. This report will begin with a summary of what transpired in 2020 and then will conclude with a forecast for home sales in 2021.
So just how hot is the demand in the market? Check out the following list of all the homes for sale in Tallahassee and you will find that nearly one-half of them are already under contract with buyers.
Listings In The Tallahassee Real Estate Market<br /><br />VIDEO Housing Market Forecast For 2021
2020 - The Fourth Most-Active Year For Home Sales
So how good was 2020 for home sellers? The graph below shows that 2020 trailed only the booming years from 2004 through 2006 for the number of homes sold.
Annual Home Sales Graph
This graph plots the number of homes sold each year in the Tallahassee MLS from 2002 through 2020.
<img src="https://assets.site-static.com/userfiles/663/image/annual-home-sales-tallahassee-jan-2021.jpg" width="800" height="698" alt="Graph displaying annual home sales in the Tallahassee real estate market" title="Annual Home Sales Tallahassee, Florida" class="img_box_center" />
Despite the fear and uncertainty generated by a global pandemic, the housing market managed to rise more than 2% in 2020.
The Year Finished Strong - Demand Remains High
Just as we forecast back in April (with a nod to <a href="https://www.manausa.com/agents/282/ron-rice/" title="Ron Rice Tallahassee Real Estate Agent">Ron Rice</a> who first voiced this expectation back in March 2020), the buyers who opted out in the Spring and early Summer came back to the market in the fourth quarter.
<img src="https://assets.site-static.com/userfiles/663/image/year-over-year-home-sales-december-2020.jpg" width="745" height="648" alt="buyers who opted out in the Spring and early Summer came back to the market in the fourth quarter" title="2020 Finish Strong For Home Sales" class="img_box_center" />
This graph 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 comparisons provides insight into the market changes by removing the seasonal changes in the market.
Year over year home sales rose more than 13% in December, registering the fourth-straight month of gains and a growth streak in five out of the past six months.
The past two graphs help us understand the demand-side of the housing market, and it is apparent that demand is sky-high.
If there were more homes listed for sale, we would have seen even more sales. Right now, the supply-side of the housing market is slowing sales.
Supply Of Homes Is Too Low
Before we examine the current state of supply and demand in the housing market, let's take a quick look at the inventory that entered the market in 2020 and in previous years.
<img src="https://assets.site-static.com/userfiles/663/image/fresh-existing-inventory-homes-2021.png" width="800" height="548" alt="Graph shows new listings entering the market over the past 7 years" title="Fresh Inventory Of Homes Listed For Sale" class="img_box_center" />
This graph counts the number of fresh existing homes entering the market. The term "fresh" is used to identify these homes as new to the market, not having been recently listed prior, and "existing" refers to the fact that we have omitted new home construction from this graph.
The number of fresh listings entering the market declined by 7% in 2020, even though sales rose. Remember, more than one-half of all homebuyers in Tallahassee have a home to sell when they move, so we expect a rise in sales to result in a rise of listings too. That was not the case.
I believe there were several hundred sellers who opted out of the market in 2020 who will be listing their homes early this year. We very well could have a strong run on existing inventory streaming into the market any time now.
But existing homes are only part of the market, we also need to look at what the builders have been providing.
New Construction Is Heating Up
Much like the previous graph which showed fresh listings on the resale side of the housing market, this next graph shows new construction listings entering the market.
<img src="https://assets.site-static.com/userfiles/663/image/fresh-new-inventory-2021.png" width="800" height="624" alt="look at what the builders have been providing" title="New Construction Homes Listed For Sale" class="img_box_center" />
New construction was up 44% in 2020, helping to bring much-needed inventory to the market. But was it enough?
Record-Low Months Of Supply
The relative supply is the supply of homes for sale relative to the current rate of demand and it’s measured in months of supply.
This table shows the non-seasonal relative supply of homes for sale.
<img src="https://assets.site-static.com/userfiles/663/image/RELmos-jan-2021.png" width="534" height="413" alt="table shows the non-seasonal relative supply of homes for sale" title="Non-Seasonal Relative Supply Of Homes For Sale" class="img_box_center" />
<br /><br />Summarizing Current Market Conditions
The previous graphs showed that demand is up and supply is down, so we have a market where prices and values are moving higher at an extreme rate of progression.
Where does this leave us for 2021?
My forecast for 2021 continues down below.<br /><br />Conflicting Market Forces Impact 2021 Housing Forecast
The big variables for the housing market in 2021 include the impact of the pandemic on jobs, the change in mortgage interest rates, and the influx of new listings of homes for sale.
It seems like everybody has an opinion on how well the pandemic is being managed and what we should expect in 2021. Unfortunately, this falls outside of my expertise, but my opinion is that we'll be dealing with COVID far beyond 2021. It will have an impact on our economy and that means jobs for many industries will continue to be at risk for the foreseeable future.
The big headlines on Youtube (for real estate anyway) claim a housing-bust will happen in 2021, but I think the majority of these reports stem from video-creators seeking viewers, not so much from factual, evidence-based reporting.
Anybody who uses 2006 as a reference to current market conditions does not study supply and demand and therefore is likely to miss the boat completely.
Forecasting The 2021 Housing Market
I have posted real estate market forecasts each year for the Tallahassee real estate market going back to 2007. Generally speaking, I have been spot-on in these looks into the crystal ball. But 2021 is different.
2021 is the most difficult forecast that I have prepared, as the variables that will determine its fate are far more volatile than they have been in the past. In order to help provide clarity on this point, I will address each of these variables and then conclude with my forecast for 2021.
Mortgage Interest Rates Are At Historical Lows
This next graph shows just how low current mortgage rates have dropped, and I'll explain exactly what that does to the housing market.
<img src="https://assets.site-static.com/userfiles/663/image/mortgage-interest-rate-history-jan-2021.jpg" width="800" height="584" alt="graph shows just how low current mortgage rates have dropped" title="Mortgage Interest Rates Are At Historical Lows" class="img_box_center" />
More than 50 years of monthly mortgage interest rates are plotted in blue above, and this is a perfect example of where a picture is worth a thousand words! The yellow dash line shows today's current rate, while the solid yellow line shows the 50-year average.
Today's rates are so low that home affordability has improved, even during the huge price and value growth observed in the market. So how does this impact our forecast?
I believe our fallen economy needed the Fed to keep interest rates low to help businesses recover from the impact of the pandemic. I also believe this will be the case in 2021 and likely 2022 as well.
I also believe that mortgage interest rates will generally follow the Fed's move on the Federal Funds Rate, meaning if the Fed cuts rates, mortgage interest rates will fall.
With that being said, I find it hard to believe we will see mortgage interest rates rise substantially over the year or so. If I were to have to bet, I would expect more rate cuts at least through mid-2021.
So low mortgage interest rates which are currently fueling heightened demand in the housing market are not likely going away any time soon. When I make my forecast for 2021, it will be done assuming rates stay below 3.25% for all of 2021.
Inventory Is Scarce - We Need More Homes
There are not enough homes for sale in Tallahassee (and most other US housing markets), we need more sellers to enter the market.
<img src="https://assets.site-static.com/userfiles/663/image/relative-supply-of-homes-jan-2021.jpg" width="800" height="584" alt="Relative Supply Of Homes For Sale - Graphed To Show Shortages" title="Inventory Is Scarce - We Need More Homes" class="img_box_center" />
This graph shows the average number of listings in each price range (red), the average monthly number of sales (green), and then plots the relative supply of homes for sale (blue).
The middle of the market is the hottest and it is where more homes are most needed. I have the middle outlined in blue above, and with its price being south of $250K, this creates a big problem.
Builders cannot deliver $250K homes to the market, they are struggling to stay below $300K right now. Yet this is what the market needs!
The big challenge for builders will be to deliver the inventory the market needs at prices the market can afford.
Additionally, we need to see the pent-up supply (people who chose not to sell due to the pandemic) stream back into the market as early as possible this year.
Distressed Homes Will NOT Overwhelm The Market
I have seen videos and read articles where people are projecting a housing market collapse in 2021, fueled by lost jobs and people losing their homes to foreclosure.
While this might seem like a realistic scenario if you have a good memory of the market from 2006 through 2012, today's facts make this highly unlikely. If the market is going to melt-down, there are many steps that will need to occur before any foreclosure crisis hits us.
<img src="https://assets.site-static.com/userfiles/663/image/distressed-property-2021.jpg" width="800" height="626" alt="If the market is going to melt-down, there are many steps that will need to occur before any foreclosure crisis hits us" title="Distressed Homes Will NOT Overwhelm The Market In 2021" class="img_box_center" />
This graph reports all home sales each year, with healthy, arms-length sales plotted in green, and distressed home sales plotted in red. Clearly, the trend shows the market improving greatly.
The black line shows the percentage of all home sales that are distressed. We saw a high of 38% back in 2012 but saw the market improve each year to a new low of 1.4% in 2020.
Unlike the market in 2008, when distressed homes were coming in and home values were plunging due to the oversupply of homes for sale, 2021 is starting from an inventory-starved position. Additionally, a lot of equity was lost from the market when foreclosures were rampant from 2010 through 2015, but today's market has equity and foreclosures will be consumed fast.
2021 Housing Market Forecast
This graph shows my forecast for home sales in the Tallahassee real estate market in 2021.
<img src="https://assets.site-static.com/userfiles/663/image/housing-market-forecast-2021.jpg" width="748" height="653" alt="This graph shows my forecast for home sales in the Tallahassee real estate market in 2021" title="2021 Housing Market Forecast" class="img_box_center" />
My forecast for home sales in 2021, as shown in the graph, is for the market to finish about 5% higher than in 2020, making it the 3rd-best year on record. A big-push by home builders could have us exceed this forecast, but I don't think it will happen.
On the other hand, the Fed could raise interest rates in order to slow inflation coming from the housing market, but I also don't think this will happen either. A slight increase in mortgage interest rates will hardly impact the market, though further large declines could push my forecast higher too.
I'll stick with 4,700 homes listed and sold in the Tallahassee MLS, and if you happen to be one of those 4,700, give us a call and let us show you why we've earned more 5-star reviews than any other company in Tallahassee. We'll work very hard to ensure that you are happy too!2021-01-11T03:58:00-07:002021-07-18T10:20:36-07:00Joe Manausatag:manausa.com,2012-09-20:16495Median Home Sales Report January 2021<img src="https://assets.site-static.com/userfiles/663/image/median-home-report-2021.jpg" width="800" height="533" alt="In today's report, we'll look at the median home price, median home value, and median home size in two separate ways" title="Median Home Sales Report January 2021" class="img_box_center" />The median home price is soaring higher in today's inventory-starved market, so let's take an in-depth review of what's going on with the median home in Tallahassee.
In today's report, we'll look at the median home price, median home value, and median home size in two separate ways.
First, let's take a look at the active listings priced near today's median home price. Note how many of them are already under contract with a buyer. The market remains blistering hot!
Median Priced Homes For Sale In Tallahassee<br /><br />In-Depth Video Report
Our first three graphs in the report segment the market by property type, allowing us to discern the median for single-family detached homes, townhomes, and condominiums.
Median Home Price
The first graph makes it very clear, the median home price is moving higher for each property type.
<img src="https://assets.site-static.com/userfiles/663/image/median-home-price-dec-2020.jpg" width="800" height="519" alt="Median Home Price Report Tallahassee" title="Median Home Price" class="img_box_center" />
The first thing that catches my eye is that the median home price for single-family detached homes is at an all-time high, leaving the past high years well behind it. But that is not the case for the attached homes.
Here's how the median home price has changed since the previous market peak in 2006:
Single-Family Detached Homes: UP 16%
Townhomes: DOWN 11%
Condominiums: DOWN 26%
Today's buyer is empowered with low mortgage interest rate loans and can spend more without blowing their monthly budget for home payments. Additionally, the relative supply of homes for sale has reached an all-time low, allowing sellers to demand more money for their homes.
Median Home Value
Much like the median home price, the median home value is moving higher for each property type.
<img src="https://assets.site-static.com/userfiles/663/image/median-home-value-dec-2020.jpg" width="800" height="519" alt="Median Home Value Tallahassee" title="Median Home Value" class="img_box_center" />
Just as we saw with prices, single-family detached homes are finding new highs while the attached units are still in the recovery stage.
Here's how the median home value has changed since the previous market peak in 2006:
Single-Family Detached Homes: UP 8%
Townhomes: DOWN 10%
Condominiums: DOWN 20%
The market has always favored detached homes, but the disparity in the recovery in values (I believe) relates to the type of buyers in the market. Back in 2006, there was an unhealthy percentage of inorganic buyers (people who were not buying to use the property, rather they were speculating on flipping it for profit).
Plenty of buildings were converted to condominiums and the speculators had a grand old time until the market was glutted with supply and values started falling. This is clear in the graph.
Notice how townhomes are moving higher at a fairly steady pace, while the road to recovery for condominiums is much bumpier. The downtown condominium market still has a glut of supply and the COVID-19 pandemic served to reduce demand for vertical urban living spaces.
Median Home Size
This next graph tracks the median home size by property type.
<img src="https://assets.site-static.com/userfiles/663/image/median-home-size-dec-2020.jpg" width="800" height="536" alt="Median Home Size Tallahassee" title="Median Home Size" class="img_box_center" />
I always like to include "size" graphs whenever we study prices and values. As a reminder, price reports show what buyers are spending, while value reports show what sellers are getting.
It's not uncommon for prices and values to move at different paces, and sometimes they even move in opposite directions. The size graph serves to explain the differences.
The graph above shows that today's buyer can afford, and is buying, larger homes. Again, buoyed by low mortgage interest rates, buyers can spend more money and are doing so, enabling them to buy "more home" than they could if interest rates were higher. We can expect to see the median home size come back down when interest rates reverse direction.<br /><br />The first portion of our report segmented the market by property type, but the next three graphs segment the market by age (new versus existing).
Median Home Price
The next graph in today's report shows the median home price of new homes (blue), existing homes (red), and then the overall median home price (gray).
<img src="https://assets.site-static.com/userfiles/663/image/median-home-price-type-2020.jpg" width="800" height="518" alt="Tallahassee Median Home Price" title="Median Home Price Segmented" class="img_box_center" />
The first thing that catches my attention when I look at the median home price graph is that homebuilders are working hard to keep the median new home price at a level that buyers can afford.
From 2013 through 2020, the median new home price has only moved about 5% higher. Contrast that with the resale market which has seen the median home price move 43% higher!
Today, the median new home price of $305K is 41% higher than the median existing-home price of $217K. Overall, Tallahassee median home price has moved to $229K.
Median Home Value
The next graph in today's report shows the median home value of new homes (blue), existing homes (red), and then the overall median home value (gray).
<img src="https://assets.site-static.com/userfiles/663/image/median-home-value-type-2020.jpg" width="800" height="516" alt="Tallahassee Median Home Value" title="Median Home Value Segmented" class="img_box_center" />
I believe the best measurement for real estate appreciation in a market with sufficient sales is the movement of the median existing-home value over time. In 2020, existing homes appreciated at 9.3%, roughly three times the average we saw in the 1990s.
Note that the builders have been holding their costs fairly steady for the past three years. I'll be curious to see how the 90%+ increase in the minimum wage over the next five years does to the cost of new homes and how that impacts the production of the homes our market so badly needs. I am not optimistic.
Go ahead and bookmark this report, and return to it in 2026. I forecast the medium (cost) value of new homes will be approaching $300 per square foot, causing the median new home price to be approaching $500K for a much smaller new home than today's buyers are getting.
Median Home Size
The next graph in today's report shows the median home size of new homes (blue), existing homes (red), and then the overall median home size (gray).
<img src="https://assets.site-static.com/userfiles/663/image/median-home-size-type-2020.jpg" width="800" height="517" alt="Tallahassee Median Home Size" title="Median Home Size Segmented" class="img_box_center" />
When I look at this graph, I immediately see how builders (blue bars) respond to changing market conditions. When the market was at its peak in 2006, the median home size was at its smallest. Following the market bottom in 2012, the homes in 2013 were the largest.
Simply put, when builders are struggling, they deliver more house for the money. And the opposite is true when times are good, you pay more for the homes. With this in mind, I expect to see the median home size for new homes decline over the next three or more years.
Real Estate Appreciation
The final graph in this report provides a great visual of how homes are appreciating in Tallahassee.
<img src="https://assets.site-static.com/userfiles/663/image/real-estate-appreciation-tallahassee-fl-2020.jpg" width="800" height="515" alt="Real Estate Appreciation Tallahassee, FL" title="Real Estate Appreciation" class="img_box_center" />
This graph really puts some perspective on the diminished inventory of homes for sale. The market has been undersupplied since the end of 2016, and we're really starting to see home values push higher at a faster rate.
Unless builders double their production (even more are needed) in 2021, I am expecting to see double-digit appreciation. The relative supply of homes is going to reach new lows, and the bidding wars are going to extend to more price ranges than we have seen in the past.
For our readers who are concerned with a market collapse, I have embedded a video below where I addressed these concerns.
Will There Be A Housing Bubble In 2021?
2021-01-04T03:51:00-07:002021-02-20T05:27:17-07:00Joe Manausatag:manausa.com,2012-09-20:15910The Truth About The Housing Bubble Of 2021<img src="https://assets.site-static.com/userfiles/663/image/housing-bubble-2021.jpg" width="800" height="533" alt="everything you need to know about a housing bubble in 2021" title="Housing Bubble Of 2021" class="img_box_center" />If you look at the most active real estate videos on YouTube, you'll find that the forecast for the next housing bubble is very popular.
Is there a housing bubble approaching, or is it just sensationalism that drives people to watch these "reports?"
Today, we'll examine the evidence and I will give you data that tells you everything you need to know about a housing bubble in 2021.<br /><br /><a href="https://www.manausa.com/blog/housing-market-2021-boom-or-bust/" title="Housing Market Update">See US Housing Market Update 3/2021</a>
A Housing Market Crisis?
What Is A Housing Bubble?
Before we examine the evidence that will clue us in on the likelihood of a housing bubble, let's first define what a bubble is and how one comes about.
Here is how <a href="https://www.investopedia.com/terms/h/housing_bubble.asp" title="Definition Of Housing Bubble">Investopedia</a> defines a housing bubble:
A housing bubble, or real estate bubble, is a run-up in housing prices fueled by demand, speculation, and exuberant spending to the point of collapse. Housing bubbles usually start with an increase in demand, in the face of limited supply, which takes a relatively extended period to replenish and increase. Speculators pour money into the market, further driving up demand. At some point, demand decreases or stagnates at the same time supply increases, resulting in a sharp drop in prices—and the bubble bursts.
In order to simplify this definition, let’s point out that it identifies two separate types of demand. Organic demand and non-organic demand
Organic demand is what we consider normal home shoppers. Families moving. People buying their first home. People relocating due to a change in work. People moving up. People downsizing. The normal reasons that people move and sell and buy homes.
Non-organic demand is the speculative investors who buy homes not for use, but rather for investment purposes. Investopedia points out that when speculators pour money into the market, we see increased demand.
But non-organic demand is not “real” demand. These are not people who will use the home, they are just holding it with the idea that values will go up and they will sell for a profit.
So in simple terms, non-organic demand drives up prices which causes the production of new homes to surge. When the reasons for the demand diminish or are exhausted, the production of new homes continues until the market is over-supplied. This over-supply leads to falling prices (which is the sign that the bubble has burst).
The bubble is the exorbitant growth of the market, the burst is the subsequent collapse that ensues.
The Last Housing Bubble Burst In 2006
We can look to the last housing bubble to understand how the next one will form and what signs we will see to know that a burst is imminent.
The last bubble began building in 2002 and was the result of a lot of factors. An over-simplified list of the two biggest contributors follows:
1. The tech bubble burst in 2000. Many people who lost money in the resulting stock market crash decided to pull their money from stocks and move it to real estate because they had positive experiences in owning real estate and felt it was safe.
2. Simultaneously, the Fed cut interest rates and held them down. New government policies were enacted to increase the homeownership rate.
These two factors combined to create an increased demand for homes in most US markets. While one could argue that the second factor was organic growth in the market, the first factor clearly was not. Rampant speculation by new real estate investors created an unsustainable demand for homes. They were buying to flip, meaning they were not going to use the homes, rather they were just going to make money from buying and selling them.
This inorganic growth of the housing market could only last so long as investors were making money, and we saw sales surge higher than ever before (and sales were higher in 2005 than they are today). It seemed as if everybody was buying homes.
But then the government programs that were created to encourage homeownership began to fail. (Again, an oversimplification), that stimulus went away. But builders kept building homes for what they felt would be a never-ending need for more homes.
As supply increased, prices softened, and investors soon found that they could not profitably flip homes. Investors began leaving the market, and this flooded even more inventory into an over-supplied market. This was the bubble bursting.
The bubble burst in 2006 and started the decline of the housing market that went until a bottom was reached six years later in 2012.<br /><br />The Housing Bubble Of 2021
So let's look at conditions today, and see if we can draw upon our knowledge of the last bubble to see where the market sits today.
Let's start by looking at the current demand. Is it purely organic, or is there an outside influencer heightening demand?
Demand For Homes In Tallahassee
The following graph shows the number of homes sold each year from January through October.
<img src="https://assets.site-static.com/userfiles/663/image/year-to-date-home-sales-11-2020.jpg" width="800" height="696" alt="Home sales each year from January through October 2020" title="Year To Date Home Sales Graph" class="img_box_center" />
The amount of homes sales happening right now shows strong demand, but not at the levels we saw as the bubble formed from 2004 through 2006. And consider this.
Our population is larger than it was back then, so one would expect to see a higher level of organic demand for homes today than we saw fifteen years ago. So does that mean we are safe?
Not at all. Because there is an outside influencer that is having an impact on demand. Historic low-mortgage interest rates, the result of the government stepping in to stimulate the COVID-ravaged economy, have made home affordability an incredible opportunity today. People are borrowing money to buy homes at rates below 3%, and this has caused heightened demand.
The graph above shows that this heightened demand though is not at unsustainable levels. But we need to dig deeper.
The Supply Of Homes For Sale In Tallahassee Is Low
The following graph shows the supply of homes for sale in Tallahassee over time. The real supply is shown in red, while the relative supply (months of supply of homes) is shown in blue.
<img src="https://assets.site-static.com/userfiles/663/image/supply-of-homes-for-sale-tallahassee-november-2020.jpg" width="800" height="582" alt="The real and relative supply of homes for sale in Tallahassee" title="Supply Of Homes For Sale In Tallahassee" class="img_box_center" />
This graph immediately shows a very different image than what we saw in 2006. The supply of homes for sale is not rising, actually, it is falling.
The blue lines in the graph above measure the supply of homes relative to the current rate of demand, and we see that there are only 3.4 months of supply of homes for sale right now (which is about 1/4th of what it was after the housing bubble burst).
So instead of seeing a housing bubble ready to burst, we are actually seeing the signs one would expect to see several years prior to the formation of a housing bubble.
We see heightened demand and falling supply. For there to be a bubble, we'll need to see home builders come in and start building homes at unsustainable rates. That is clearly not happening.
New Home Construction Production Levels
The following graph shows new construction activity in Tallahassee for the past thirty years.
<img src="https://assets.site-static.com/userfiles/663/image/new-home-construction-tallahassee-november-2020.jpg" width="800" height="586" alt="graph shows new construction activity in Tallahassee for the past thirty years" title="New Home Construction Production Levels" class="img_box_center" />
We saw 140 new homes permitted per month as the housing bubble crested in 2006, yet today we are seeing less than 50 per month. In fact, the average number in the 1990s was closer to 100 per month.
After looking at this graph, are you concerned that builders today are building too many homes? Are we ramping up production at unsustainable levels? It certainly does not seem so.
The low inventory in the market, coupled with the feverish demand fueled by low mortgage interest rates should make you wonder what the heck builders are doing? Why aren't they building more homes?
New Construction Costs Are Moving Higher, Faster
The cost to build homes is only going higher. Existing homes are not keeping pace (yet), so the market for new homes is softened by the cost to acquire them.
<img src="https://assets.site-static.com/userfiles/663/image/new-construction-costs-november-2020.jpg" width="800" height="583" alt="The cost of new homes is 60% higher than those in the existing homes market" title="New Construction Costs Are Moving Higher, Faster" class="img_box_center" />
Right now, we're seeing the average new home costs about 60% more than the average existing home. The market that so desperately needs more homes cannot afford what they cost to build.
And the problem is only going to get worse.
If you think the 55% growth in the minimum wage since 2005 had no influence on the rising price of new homes, then you are going to be blown by how costs rise now going forward.
Couple rising wages with the increased cost of land development and the scarcity of land and it won't be long before a new construction starter home will cost more than $500K in Tallahassee. I expect to see this as reality no later than 2025.
Right now, the median home price in Tallahassee is about $215K, while the median new home price is $300K. Considering that just 20% of Tallahasseans who purchased homes this year spent $300K or more, you can see why builders are not building. They cannot build a home at a price that most home buyers can afford.
The Truth About The 2021 Housing Bubble
Here's the truth about the housing bubble in 2021. It will not happen. It cannot happen.
It is possible that another housing bubble could occur in the future, but it certainly won't happen in 2021. There is no reason to believe that builders will be able to over-supply this market in the near future.
I do expect to see demand decline when mortgage interest rates rise. But will rates rise significantly in 2021? I doubt it, but no matter how fast they move, it will not put the market in a bubble.
In fact, I suspect that the Fed will find itself in a quandary in 2021. The Fed will want to keep rates low to stimulate the ailing economy, but it will want to increase rates to reign in the housing market and the hyper rate of real estate appreciation.
If rates do move up, they will most likely do so conservatively, as I cannot imagine our fragile economy handling much in that regard. Regardless, we should expect inventory shortages to exist through all of 2021. This is the complete opposite of a housing bubble! The shortages will continue well into 2022.
2022 is still far enough out that other factors could push the market into harm's way, but it just does not seem like we should be concerned today with over-building the market.
The only concern for the housing market is the slowdown that will naturally occur as mortgage interest rates move to more normal levels. This still will not create a housing bubble, as the supply-side of the market has been ignored for too many years and today’s demand is consistent with the organic needs of our growing population.
We need more homes to cover the slow population growth that continues in Tallahassee, and a housing bubble requires the supply-side to explode as demand diminishes.
Short of a major economic change (like the State moving its government outside of Tallahassee), there is no housing bubble on the visible horizon, and certainly not in 2021.2020-11-16T03:51:00-07:002021-03-22T08:33:56-07:00Joe Manausa