Welcome to our May newsletter, where we dive into national and local residential real estate trends. This month, we examine how the housing undersupply is increasing home prices and paving the way toward a more balanced market. We also discuss the decrease in mortgage rates and employment, which is historically one of the leading indicators of home valuations.
Currently, the housing supply is so low that demand far outpaces the number of homes on the market. Freddie Mac estimates that the United States is about 4 million homes short of meeting buyer demand. The housing shortage compounds when potential home sellers decide to stay because they feel they won’t be able to find a new home. Home builders, who have been slow to ramp up production after the 2008 crash, are drastically increasing new construction because they want to capitalize on the sustained demand for housing.
We expect relative housing demand to remain high over the next 12 months at the very least. New homes take time to build and will not come to market at the rate necessary to balance it. In March 2021, U.S. home builders started constructing homes at a seasonally adjusted annual rate of 1.74 million, up 37% compared to March 2020. New construction will eventually alleviate some of the shortage, but housing will remain undersupplied for months, if not years, to come.
Key Topics and Trends in May
Mortgage rates rose significantly, slightly over 50 basis points, from January 2021 to mid-April 2021, but dropped sharply back below 3% in the second half of April. Although interest rates are still expected to rise to 3.7% over the course of the year, according to the Mortgage Bankers Association, the mortgage rate drop shows the non-linear path that rates will likely take. Because the mortgage rate affects affordability, the current low rate will only increase demand in the short term.
High unemployment is one of the strongest predictors of falling home prices over a two-year period. Twice as many workers are currently unemployed than in February 2020. The initial pain of unemployment has been dampened by government relief. Mortgages in forbearance and foreclosures are low, as are delinquencies in credit card debt. However, we will continue to monitor unemployment in order to gauge future market conditions.
May Housing Market Updates for the East Bay
During March 2021 in the East Bay, median single-family home prices rose to new all-time highs in Alameda and Contra Costa as inventory was below last year’s level. Year-over-year, home prices increased considerably, up 20% in Alameda and 29% in Contra Costa. In addition, single-family homes spent less time on the market in March 2021 than they did last year. The sustained low inventory and low days on market will likely cause prices to appreciate throughout 2021.
We anticipate new listings to accelerate into the summer months. The current market conditions could withstand a high number of new listings coming to market, and more sellers could enter the market to capitalize on the high buyer demand.
Overall, the housing market has shown its resilience through the pandemic and remains one of the most valuable asset classes. As always, Arrive Real Estate Group remains committed to helping our clients achieve their current and future real estate goals. Our team of experienced professionals are happy to discuss the information we’ve shared in this newsletter. We welcome you to contact us with any questions about the current market or to request an evaluation of your home.