There’s no denying that 2020 was a year none of us were prepared for or knew how to handle.
There was a lot of confusion and worry for what was to come from this whirlwind of a year in the future. One thing in particular that no one saw coming was what has happened with the seller’s market. If anything, I believe most people were concerned that existing home sales and new builds were going to come to a complete halt. Little did we know, this was going to be one the biggest housing market booms to date!
So why is it that in a time of uncertainty, the demand for homes has sky rocketed? One of the biggest reasons is the historically low interest rates.
As you can see from the graph above, interest rates have dropped significantly over the last several years. If you are in the market for a home or investment property, you should be taking advantage of this! Right now, some of the best financing opportunities are available for you, allowing investors to mitigate the exposure to future inflation and to use leverage to invest in assets. Investors should be taking on debt right now with low mortgage rates that will over time, be worth less. Some people believe that because of the demand of homes, that interest rates are sure to rise but with the recovering economy, the federal government is not likely to push that right now.
Some say that these interest rates are to stay low at least until 2023. It is important to be sure to look at interest rates over a long period of time and not how they are fluctuating over a month-to-month basis. You will notice the rates climb a bit and fall and continue to do this within short periods of time but it is important to note that the rates are still at a record low.
Another major reason that the demand for housing has significantly increased is because of the effects of COVID. The pandemic has allowed people to work remotely from home, which in turn, has allowed them the flexibility to live where they wish. People are moving further away from their job locations because they don’t have to worry about the commute and they can live where they have always wanted. People have taken this opportunity to move away from dense, urban locations into more rural areas. There are more people wanting their own space and not
wanting to live in a populated apartment building.
There are also home buyers making up for lost time as this time last year, home sales slowed, considerably. The world has begun opening back up and those who planned to buy in 2020 are doing it now, causing a rush of home buyers. Stimulus checks and unemployment benefits have pumped a lot of liquidity into the economy pushing people to buy even more. The effects of Covid have caused a jump in demand for housing but it wasn’t like that in the beginning. March through April of 2020 home sales plunged 18% and another 10% from April to May. Things started to turn around in June of 2020 though, as real estate sales shot back up 21%. By August, houses were selling at the fastest rate since August of 2006
With this high demand in home buying, also comes a shortage. Since the economy crashed in 2008, builders have been cautious about building too many homes and not having enough buyers which has now caused a low supply of inventory. With a balanced market, one that does not favor the buyer or the seller, the market would usually see a 6-month supply of inventory giving us around 3.49 million homes for sale. According to the National Association of Realtors, currently, there is a 1.1-month supply of homes, or 1.07 million houses on the market. This means at this rate it would take 1 month to completely deplete the supply of houses for sale
The issue is not so much the demand for houses, but the shortage. The housing market is close to being nearly 4 million houses short of meeting the buyer’s demand. According to a new analysis by mortgage-finance company Freddie Mac, there is a 52% rise in the nation’s home shortage compared to 2018. Sales are continuing to rise as an effect of this as well. The median sale price of a home in 2020 was $330,000.00, up 15% from the year before. The number of active listings fell 28% from 2019.
High demand, low supply of inventory, low mortgage rates, a recovering economy. There are so many factors to consider right now if you are a home buyer or real estate investor. It is important to remember that the sooner you invest in real estate, the sooner you start accumulating wealth. Yes, current inventory levels are low making it a little bit harder to come by these properties but the opportunities are available to give you good appreciation and cash
flow. Take advantage of the financing opportunities and low mortgage rates. Accumulate the more affordable debt right now and start living out your financial dreams. Rent To Retirement is your partner in sourcing the best deals nationwide!