In the past year, the United States has seen a ton of change. While this is true of every year, 2020 was truly a one-of-a-kind year. These sweeping changes were present in all levels of American society, and one big area that reflected the changing nature of the United States was the real estate market.
The nature of the pandemic, with many big cities shutting down, and citizens being hesitant to leave their homes, led to a decline in activity in Spring and early Summer. But once many restrictions were lifted, the real estate market has seen way more action than normal in most cities. This has many implications, but one of the biggest ones from this whole situation has been the national lack of inventory in the market right now.
“Year over year, Austin, Rochester, and Los Angeles all had the biggest increases throughout 2020…”
According to Realtor.com, the national inventory of homes available in the United States declined by 42.6% in 2020. This is a drastic amount and equals a new low. In January of 2021, there were 443,000 fewer homes for sale nationally than in January of 2020. Supply is extremely limited right now, which puts sellers at a big advantage, while buyers are in a much more competitive market. This has driven the price of homes way up.
According to the same report by Realtor.com, the national median listing price in January of 2021 is up to $346,000, which is an increase of 15.4% compared to January of 2020. Just about everywhere in America, prices are rising rapidly spurred by the lack of inventory. Some areas, in particular, have seen massive increases in median listing price.
Year over year, Austin, Rochester, and Los Angeles all had the biggest increases throughout 2020, with increases in median listing prices of 30.2%, 25.9%, and 22.4%, respectively. These increases seem unsustainable, as eventually, the lack of supply is going to catch up to the market. This has led some experts to question whether there is a bubble forming.
The experts who say we might be facing another real estate bubble are pointing towards several indicators, including supply not being able to keep up with demand. As well, according to USA Today, other indicators paint a potentially scary story.
Since November of 2012, home prices have appreciated by 60%, and rent prices by 30%. At that same time, incomes have only appreciated by 20%. That means both the home price index and rent index have substantially outpaced the wage index of the nation.
However, this doesn’t necessarily mean that there will be a collapse similar to 2008. That housing bubble was built due to lenders extending credit to people who couldn’t pay it back at an unprecedented rate. Right now, the reason prices have risen are simple economics of supply and demand, combined with low interest and mortgage rates spurring buyer action.
The aging of millennials and Gen Z populations into homebuyers is one of the reasons for this demand, as well as work from home giving buyers more freedom to pursue homes in locations away from their offices. Even if some indicators give reason for pause, there is still plenty of reason to be bullish on the market going forward.