Quick facts about the housing market
- Demand has decreased by about 1%
- Supply remained about the same, only adding a few homes
- Mortgage applications are decreasing as well (a telling sign that demand will most likely continue falling in the next month or two in the housing market)
- Luxury demand(homes priced at 1.5 million and above) has seen a 5% decrease in demand over the last two weeks, the peak selling season for luxury homes is behind us
- Interest rates went up this week but are still hovering right around 3% and have been around that range for more than a month now
Little has changed over the last month in the housing market, yes supply went up by a few homes, and demand dropped slightly, but overall if you are buying or selling a home today compared to a few weeks ago, you probably won’t feel the difference. School is either out, or almost out and Summer 2021 is about to start. What does this mean for the housing market? We will continue to see demand decrease as the distractions of Summer set in. Buyers, probably more than usual this year due to restrictions finally being lifted, will go on vacation, have family and friends over for BBQ’s, go the the beach, etc. and because of this they are traditionally less aggressively pursuing a home during the next 3 months.
At the same time, Sellers are placing their homes on the market in larger number to try to get their home sold to then go and purchase a new one before the Fall semester starts up again. Less demand, more supply, the hot seller’s market is finally coming to an end! Well, don’t get too excited if you’re a buyer or too worried if you’re a seller. The inventory is so low right now that it is going to take months if not years to climb out of this shortage. Just to give you a quick example to illustrate how bad it is, using the years 2015-2019(not using 2020 for obvious reasons) Orange County ended the month of May with and average of 6,363 homes on the market. Can you guess how many homes we have on the market right now? 2,255, which means we typically have 182% more homes on the market going into Summer than we do this year. Very hard to make those kind of numbers up quickly enough to cause any significant shifts in the housing market.
On top of that, interest rates are still hovering right around 3%, keeping the demand inflated as buyers try to take advantage of these extremely low rates to lock in the lower monthly payment before rates start to go back up again. We will continue to see homes appreciate this Summer at a quicker than normal pace even as the market cools slightly by the end of Summer.
The likelihood that inventory drops any more is very low, in fact you should start seeing it rise more significantly over the next 3 months, at the same time, interest rates seem to have bottomed out right around 3% and will be heading up as we get further into the year. What does this mean for you? Higher supply and lower demand, we are shifting out of the peak Spring selling season and into the Summer season where buyers will have slightly more to choose from. Rising interest rates will also take some buyers out of the market. If you have been waiting for the peak, it has already happened, especially in the luxury home segment, and although we won’t be out of a hot seller’s market anytime soon, lower competition will lead to less offers and the crazy bidding wars will cool down slightly.
Because we are in the hottest seller’s market in my lifetime, the transition into a normal hot seller’s market will take time but the longer you wait at this point the further your ability to dictate the terms of your homes sale will erode. If you are looking at purchasing a new home with the proceeds from the sale of your current home, this is especially important because right now buyers are willing to give you months to find a replacement property after your home closes, it won’t be that way forever so take advantage of it now so you don’t have to stress about not being about to find a new home quickly enough once yours sells.
Inventory should continue rising over the Summer which is great news for you but don’t get your hopes up too much, it will still be a very competitive market all the way through Summer due to the extreme lack of inventory, There are just not enough homes to go around to satisfy the demand created by these historically low interest rates. However, PLEASE don’t throw in the towel, yes, it’s hard to stay in the game when you are having to deal with multiple offers on the majority of homes, however interest rates are expected to rise and when they do, you could quickly be priced out of the market and will have to wait on the sidelines even longer.
Also, please remember, one of the biggest mistakes buyers are making when looking for a home right now is underestimating how long it will take for them to find a home and get into escrow. If you have a deadline on when you need/want to be in a new home, you need to make sure you start the process at least 3 months in advance. If not, you could find yourself in a position where you are compromising on the location and/or must haves in your new home because you are running out of time to find a place. This is one of the top reasons buyers end up regretting buying their home and it’s not an easy fix. Know what to expect, and give yourself the time you need to find the perfect place so when you do, and you get the keys handed to you at the end of escrow, you can enjoy the home for years to come.