The housing market has been gaining strength in the last few years -- particularly during the COVID-19 pandemic. Home values soared, buyer demand jumped, and mortgage rates hit historic lows. And ultimately, it’s made housing one of the few bright spots during an otherwise difficult time.
But the housing market is always in flux, and real estate trends come and go. Throw in that this industry is highly localized, with different conditions in every city, state, and metro area, and you can’t bet on things staying stagnant for long.
Fortunately, understanding the fundamentals of the market can help you stay on top of all these changes. Check out some of those fundamentals below, and scroll down for the most up-to-date real estate trends of the month.
Real estate prices
House prices are influenced by a number of factors, including local buyer demand and the amount of housing supply that’s available for purchase. Generally speaking, high demand and low supply cause housing prices to rise.
Mortgage rates can also play a role since they impact demand. When rates are lower, there tends to be more interest in buying homes. When rates rise, demand might wane a bit.
At the national level, home prices have been rising for some time. As of the end of 2020, the median home price was just under $347,000. Home prices jumped 11% across 2020 alone.
Affordability isn’t just a result of house prices. Incomes, inflation, and interest rates also play a role. So rising prices? They don’t always mean homes are getting less affordable. If rates are particularly low or incomes are increasing, homebuyers might actually be able to afford more house than they could have previously.
Fortunately, that’s exactly the scenario we’re seeing today. When factoring in rates, income trends, and inflation, consumer house-buying power was actually up 21% by the end of 2020.
Mortgage interest rates play a big role in the housing market, impacting demand, home prices, and affordability. They also fluctuate daily based on a whole slew of factors, including Federal Reserve policy, the bond market, investor interest in mortgage-backed securities, and, of course, inflation.
In early 2021, mortgage rates hovered around all-time lows, according to Freddie Mac. The average rate on a 30-year, fixed-rate mortgage was just 2.74% in January, up from 3.62% the year before and 4.76% a decade prior.
Housing inventory -- or the supply of homes that are currently available for purchase -- is another important factor in the housing market, too. When inventory is low and demand is high, it creates a seller’s market. Home prices rise, bidding wars erupt, and sellers have the upper hand in negotiations.
If inventory is high, on the other hand, buyers tend to have the advantage. In a buyer’s market, there are more available listings than there are buyers to purchase them. This slows down price growth and makes the market less competitive overall.
As far as today's inventory goes, supply has been very low in recent years, and the coronavirus pandemic only worsened things. With sellers leery about having strangers in their homes -- not to mention loads of economic uncertainty -- the number of for-sale listings plummeted in 2020, at one point reaching its lowest level ever recorded. Listings have since recovered slightly but still remain fairly low. It’s possible widespread vaccinations will help loosen supply constraints and get sellers back on the market, but, of course, only time will tell.
Delinquencies and foreclosures
Mortgage delinquencies and distressed properties like foreclosures and REOs are another part of the market to pay attention to, especially if you’re an investor. Both of these tend to rise in times of economic hardship. (Case in point: During the financial crisis over a decade ago, there were around 3.8 million foreclosures.)
Though the pandemic has certainly caused some economic trouble -- not to mention plenty of job loss -- the same isn’t occurring this time around. That’s thanks to a variety of foreclosure bans (one from the White House for government-backed properties and another from the Federal Housing Finance Agency for those with Fannie Mae- and Freddie Mac-owned loans). As of early 2021, foreclosures were actually down 80% due to these measures.
Housing market cycles and crashes
Real estate, along with the overall economy, tends to be cyclical. There are booms and busts, and as we saw with the housing crash back in 2007-2008, some of these extremes can get pretty bad.
Fortunately, most experts don’t think we’re nearing another crisis just yet. Though the economy is in a recession, there are a few key differences in today’s housing market versus those of downturns past.
For one, property owners have record levels of equity. Between Q3 2019 and Q3 2020, homeowner equity jumped by $1 trillion, and according to recent data, a mere 3% of properties have negative equity. This equity protects borrowers in the event their homes lose value, giving them a sort of buffer if the market turns.
Lending standards are also stricter than they once were, so homeowners likely have fewer debts and better credit profiles; overall, they're more financially equipped to handle the mortgages they’ve taken out. On top of all this, there are low interest rates to consider. The Federal Reserve has committed to keeping the federal funds rate around zero until at least 2023. This should keep mortgage rates low and housing demand high for the foreseeable future.
Top real estate trends for June 2021
Now that those fundamental market conditions are out of the way, let's dive into some more timely trends that we're seeing. Here's what's happening in real estate in June 2021.
1. Homes are selling at breakneck speeds
It's no secret that inventory is low and demand is high, creating one of the most competitive housing markets our country's ever seen. But on the ground, the sense of urgency is real.
According to data from real estate brokerage Redfin (NASDAQ: RDFN), the average house is selling in a mere 18 days. That's down a whopping 17 days from the same time last year, the fastest pace ever recorded.
Many homes are selling even quicker, too. In fact, 58% of listings are under contract in two weeks, and 45% are under contract in just one.
Unfortunately, it seems like those conditions aren't letting up anytime soon. Here's how Daryl Fairweather, chief economist for Redfin, put it: "The housing market has gone from one extreme -- the onset of the pandemic, to another -- the rush to buy primary and second homes while mortgage rates remain near historic lows … This home sale boom is nowhere close to over."
2. The CDC is getting pummeled with lawsuits
The Centers for Disease Control (CDC) has extended the national eviction ban through at least June 30, but property managers and Realtor groups aren't taking it lying down.
In late May, Florida Realtors -- one of the largest Realtor trade associations in the country -- filed suit against the CDC, claiming it overstepped its bounds in banning evictions across the country. It also took aim at the CDC's lack of landlord protections during the pandemic.
"The CDC's order does not relieve landlords from their obligations to pay property taxes, make their own mortgage payments on rental properties, or provide maintenance and upkeep necessary to comply with applicable laws or regulations," the suit says. "Congress has spent trillions of dollars addressing COVID-19. It could have provided landlords with direct assistance to address the severe and, in some instances, dire effects on landlords when tenants no longer pay rent but cannot be evicted for breaching their leases. Congress chose not to do so."
The claim is just one of many currently lobbied against the government agency, as well as those who lead it. Another one -- this time filed by Realtor associations in Georgia and Alabama -- is currently in the appeals process.
3. Foreclosures and delinquencies are dropping
With various foreclosure bans and mortgage forbearance options still available, this one's not a huge surprise, but both foreclosure filings and mortgage delinquencies have slipped. According to ATTOM Data, foreclosure filings dropped 1% from March to April and are now down 17% over the year. A mere 3,700 foreclosure starts commenced in April -- a record low for the stat.
Simultaneously, mortgage delinquencies have dropped 7.11% month over month. Now, fewer than 5% of mortgage loans are delinquent -- the first time the share's been that low since the pandemic started. What's more? Serious delinquencies -- or loans at least 90 days past due -- dropped by 151,000 over the month, too.
Altogether, these stats spell fewer distressed properties, both today and in the immediate future. For investors who specialize in fix-and-flips and other similar strategies, it could be worrisome. Remember, though: Forbearance options won't last forever. Once borrowers start to run out the clock, the tables could turn -- but only time will tell.
As Black Knight put it, "As of right now, it looks as though the end of Q3/beginning of Q4 will be an inflection point in terms of our understanding of how the post-forbearance world will shake out."
4. Housing affordability is on the downslide
Home prices have been on a tear for quite some time, and according to the latest data from the Federal Housing Finance Agency, there are no signs of slowing down. The most recent FHFA House Price Index has prices up a whopping 12.2% over the year, with the biggest jump seen in the Mountain Census division (Arizona, Colorado, Idaho, etc.) There, prices rose over 15% in the last 12 months.
Even prices in historically low-cost opportunity zones are on the rise. In fact, 75% of OZs saw median home prices rise over the year, and a much smaller share of homes are under $150,000 in these areas.
When you throw in rising mortgage rates, affordability starts to slow considerably. A recent analysis from title insurer First American shows "real house prices" -- which take into account interest rates, home prices, and income trends -- increased 4.2% in March from February numbers.
"The drop in affordability was broadly felt as affordability declined year over year in 45 of the 50 markets we track," said Mark Fleming, First American's chief economist.
5. The new administration is setting its sights on housing
Housing issues have come front and center since the Biden administration took over, and it's trickling down to investors in both good and bad ways.
On the positive side, you've got the SECURE Act, which was reintroduced in Congress in mid-May. This bill would allow for remote notarizations (and hence, digital closings) nationwide. If passed, it'll be a huge boon to investors, particularly those who buy out of state.
There's also the massive rental assistance measure passed as part of the American Rescue Plan in March. Though some states have been slow to disburse these funds, the bill allotted more than $21 billion to renters in need. It can be used toward past due rent, future rent, utilities, and more.
On the downside, the administration also plans to cut back on the tax advantages of 1031 exchanges, limiting the capital gains tax break to purchases under $500,000. If you rely on like-kind exchanges for your portfolio, you may want to make some moves before the change is solidified.
The bottom line
Real estate trends are always in flux. Want to stay on top of these latest trends and happenings? Check back here every month for updates.