We’ve all heard, or maybe even experienced first-hand, the stories about someone who sold their home during the recent real estate boom. A friend or neighbor saying, “My house sold before a sign was even put in the ground. We received two dozen offers and sold our home for well over the asking price!”
As the old adage goes, all good things must come to an end. The question is, has that moment arrived or are we experiencing a seasonal drop in the residential real estate market? From the media, which had previously reported on the unprecedented housing boom, come ominous headlines like, “Housing boom is over as new home sales fall to pandemic low” and “Something big is about to happen in the housing market.”
Houses do appear to be sitting a bit longer on the market these days and frenzied 30-day purchase-to-close transactions have given way to 45- and 60-day settlements. Sellers have realized that once they sell their home in 10 minutes, they become buyers with no inventory to prospect. Additionally, some first-time homebuyers who have witnessed skyrocketing prices are feeling exhausted and disenfranchised and have decided to cautiously pull back.
What needs to be determined is whether or not this represents a material market change or merely a lull. In a typical year, residential transactions tend to decrease in the summer months as buyers and sellers enjoy weddings, graduations and vacations. Many of these events had been absent for 18 months due to COVID-19, so the residential real estate market fired on all cylinders unabated from the outset of the pandemic.
With property values increasing in the double digits over the past year-and-a-half, homeowners were flush with equity that allowed them to consolidate debt, perform home improvements, and take cash out for other real estate purchases such as a vacation homes or investment properties. Contractors became overbooked and then material shortages and supply chain issues precipitated. Lumber prices skyrocketed, but they have cooled to somewhat more reasonable levels.
From May 2021, which appears to be the zenith of this housing market, to June 2021, mortgage applications dropped 30%. From June to July, they dropped another 30%. A 60% decline in 60 days is certainly noteworthy but doesn’t necessarily constitute a trend. The return to school and post-Labor Day activity could tell us definitively if we are seeing this extraordinary run come to an end. The impact of the Delta variant has yet to be determined as well.
Are there other concerns such as forbearances, delinquencies, etc.? The good news about this market versus the last financial crisis is that these significant defaults are few, despite the employment disruption stemming from COVID-19 last year. Rigorous compliance and government monitoring have prevented speculative financing which caused previous homeowners to find themselves “underwater.” In essence, even if there is a pullback in home values, many homeowners are in a much more stable position overall than in the last housing meltdown.
As of August 2021, mortgage interest rates are incredibly accommodating, there is a wealth of products available to meet most financing needs, and the refinance market is giving way to a more traditional residential purchase and construction market. It is widely anticipated that resales and new construction will continue to overtake mortgage refinance activity in the months ahead. It remains speculative as to whether or not housing prices will downwardly shift to a more rational level, but these past two months suggest that we may be headed in that direction.
Since inventory continues to be problematic, potential buyers need to bring their best offer in order to compete and should have their mortgage financing prepared with a pre-approval. Univest Home Loans offers these complimentary services which can make all the difference in a tight housing market. Contact Univest Home Loans today at 877-723-5571 or email@example.com to see what’s possible for your home financing needs.
Univest Bank and Trust Co. is an Equal Housing Lender. NMLS #415882