Today’s real estate market is like a rodeo.
The competition for buying homes is more fierce than Bodacious. In case you don’t know, he’s the 1,900 pound, “world’s most dangerous” bucking bull.
Buyers saddle up knowing the challenge…
When submitting offers, they need to be super aggressive to avoid getting bucked out of the competition.
I’ve been in real estate for 50 years and have never seen anything like it.
So how did we get here? Put your boots on for this one!
Inventory levels are razor thin.
There are about 388,000 single family homes listed for sale out of about 84 million in the U.S. That’s historically low, not even a tenth of a percent (.0046%).
In 2015 listed home inventory was almost three times what it is today and has been declining ever since. As you can see from the graph, there was a precipitous drop over the past year.
In Maricopa County, AZ, one of the lowest inventory markets in the country, there are only about 3,000 single-family homes available out of 1.4 million (.0021%).
In my community, Paradise Valley, AZ there are only 146 active listings out of about 6,500 homes (.02%). There are normally 300-400 homes for sale.
What’s Kicking The Bull?
Furious buyer demand is “spurring” the lack of inventory.
Why? I’m sure you already know…
Unbelievably low mortgage rates.
Rates have been steadily declining since 1982…
Interest Rates 1970-2020
In 2020 rates finally dipped under 3%…
2020 Interest Rate By Month
Shockingly low rates + drastically low inventory =
Skyrocketing Home Prices
The national median price of sold homes jumped a significant 13% in 2020 according to Realtor.com (Phoenix Metro appreciated 17%).
To put this in perspective, nationally we had a 7.21% increase in 2019, and a 3.14% increase in 2018.
The Crystal Ball
Nobody’s got one.
It’s impossible to predict what mortgage rates and home prices will do in the future just like it’s impossible to predict the stock market.
Remember the scene from Wolf on Wall Street?… “The number one rule of Wall Street… nobody knows if the stock is going to go up, down, sideways, or in circles… least of all stock brokers.”
That being said, rates have recently risen slightly, and if that continues, here’s what could happen…
The Higher Rate Perception
Presume rates rise to 4% this year.
Shouldn’t buyers still be delighted with a “low” rate of 4%?
They may not.
It’s consumer psychology.
Buyers may not think 4% is better than what they would have paid in previous years.
Instead, buyers may think 4% is awful compared to the 2.7% rate we had just a couple of months ago.
This will cause a lot of buyers to tap out, not because they can’t afford homes, but because rates will be perceived as too high.
Buyers Priced Out
If rates go up significantly, mortgage payments will too.
If we continue to see upward pressure on home prices, Bodacious will get really cantankerous.
Buyers will face the dual challenge of higher home prices and higher interest rates, which means much higher mortgage payments may “price them out” of the market altogether.
The Bottom Line
You’ve heard the terms “bear market” and “bull market.”
A bear attacks downward with its claws (declining economy), while a bull thrusts upward with its horns (booming economy).
We’re currently in one of the best bull markets ever in real estate.
Will 2021 be the year that the bear bucks the bull?
Rates will tell.