The housing market was hot in 2020 with historically low mortgage rates and a sudden relocation wave triggered by the need for more space as lockdowns took effect and people forced to work from home. At the same time last year, home prices were increasingly pushing to new heights as the thousands of homebuyers flooded the market to compete for the few homes available. Stepping into a new year with a lot of hope, the situation doesn’t look so much different.
Are you thinking of buying a home this year? Well, there’s something you need to consider. Records have revealed that prices are rising at the fastest pace in more than a decade. The upward trending of home prices seems so have picked momentum somewhere towards the end of last year. Home prices surged by more than 8% in October 2020, compared to the same time the previous year, according to data from a leading national index. This has been mainly contributed by the simple supply and demand rule; a rush of pandemic-fueled buying, alongside the limited number of housing inventory.
Usually, the surge in home prices is fastest along the coast of the country. But we’re still in the middle of unprecedented times. So, it’s not business as usual. This means that the rise is currently not fastest along the coast. Where is it?
“One word— the middle.” CNBC’s Diana Olick says. “It’s the new coast if you will.”
“For decades, home prices have surged along the coast in big cities like Boston, New York, Miami, L.A., and San Francisco, and they’re still going up there. But it’s the middle that is the new star,” Diana adds. “Prices are up by more than 10% from a year ago in cities like Indianapolis, Kansa City, Boise, Austin, and the three biggest cities in Ohio. Also, both Memphis, Knoxville, and Tennessee saw very strong gains. These have all been historically more affordable markets and markets that generally have a much bigger supply of homes available for sale. That makes the suddenly strong price growth in the middle of a country that much more striking. Much of it likely to do with the pandemic and the ability to work from anywhere now.”
According to Diana, people are heading to less expensive markets where they can buy homes with more space and land. However, this new wave is making these markets in the middle less affordable. Consequently, the benefits of the record low mortgage rates which are targeted to help homebuyers afford to buy homes are getting wiped out by the rising home prices.
“At the end of 2020, homes in more than half of the counties in the nation saw home prices rise so fast that they become far less affordable than their historical levels— that’s according to Adam Data Solutions,” Diana says. “and that’s a significantly larger share that the same time the year before or pre-pandemic.”
What did the predictions say?
“We expect sales to grow 7 percent and prices to rise another 5.7 percent on top of 2020’s already high levels,” Realtor.com chief economist Danielle Hale said in December last year. “While we expect mortgage rates to tick up gradually, sales and price growth will be propelled by still strong demand, a recovering economy, and still low mortgage rates. High buyer demand and still-lagging supply will keep prices growing, but at a slower pace than 2020 as buyers contend with mortgage rate and price increases that create affordability challenges.”
“While younger Millennial and Gen-Z buyers are expected to play a growing role in the housing market, fast-rising prices will create a bigger barrier to entry for the many first-time buyers in these generations who don’t have existing home equity to tap for down payment savings,” Danielle added.
And true to that, it’s already happening. I think the best thing to do here is to brace ourselves for a hotter market in 2021.