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The housing market continues its strong march into the new year with sales holding firm, constrained only by the record low inventory available.
Existing home sales rose .6% in January for the second consecutive month and were up 23.7% from a year ago, for an adjusted annual rate of 6.69 million units.
“Home sales continue to ascend in the first month of the year, as buyers quickly snatched up virtually every new listing coming on the market,” reported National Association of REALTORS® (NAR) chief economist Lawrence Yun. “Sales easily could have been even 20% higher if there had been more inventory and more choices,” Yun continued.
Pending home sales dipped versus previous month (-2.8%) but are still 13% higher than last year, marking an all-time high for January with a pending home sales index of 122.8. Home prices continue to rise with a median home price of $303,900, for a 107th straight month of year-over-year gains.
Inventory remains a critical concern. Available units are down a record 25.7% vs. 2020 to a record-low 1.04 million units. That translates to a 1.9-month inventory, a considerable drop from the 3.1-month inventory available at this time last year. No surprise, the market is moving fast with 71% of homes sold in under a month.
“Even as house prices increase at the fastest rate we’ve seen in years, competition to buy is strong given the low inventory that exists across the country. The fact that there are not enough homes to meet demand is going to be an ongoing issue for the foreseeable future,” notes Freddie Mac chief economist Sam Khater.
Housing starts fell in January for the first time in five months, with some experts weighing in that rising prices may be impacting affordability and growth. Lumber has been an ongoing challenge for homebuilders with the costs of some materials double and triple what they were a year ago.
“The industry has faced two surges in lumber pricing in 2020, including one that persists here at the start of 2021,” according to National Association of Home Builders top economist Robert Dietz. “Materials are also taking longer to arrive at construction sites,” Dietz continued.
All of this said, applications to build increased 10.4% to 1.88 million, the highest pace since May 2006, indicating builders are still intent on meeting demand.
Mortgage rates remain at record lows: 2.73% for a 30-year, fixed-rate at the end of January. Compare this to 3.51% at the same time last year. Mortgage applications are also up 8.1% for the week ending January 29.
“Average purchase loan amounts in early 2021 continue to rise across all loan types, driven by a strong pace of home sales, tight housing inventory and high home-price growth,” notes Joel Kan, economist with the Mortgage Bankers Association (MBA).
Price pressure is impacting what consumers will be looking for moving into the next decade. Smaller is better, according to a recent poll by the International Furnishings and Design Association (IFDA). Nearly 63% of respondents expect to live in a home with smaller space with nearly two in three assuming the formal living room will disappear.
“Overall, homes are being designed to more fully utilize space within a given footprint, and builders are looking to maximize finished space under the roof,” according to construction company owner, George Sheaffer.
As the economy continues to improve, Yun anticipates rates rising to due to inflation and budget deficits. There’s no time like the present for real estate investors to lock in rates, capitalize on trends and take advantage of opportunities.
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