Wednesday, June 16, 2021 / by Jay Lesko
While most of the US population has undergone recent vaccinations, and in light of the ongoing economic conditions still under threat of the global pandemic - the resilience of the US housing market has hit new highs in recent months. According to recent data by Realtor.com, the median house price jumped by 15.2% in May 2021, compared to last year this time. As the pandemic surged last summer, most people had to halt the sale of their houses as lockdown restrictions came into action. Now, it’s not only Australia going through a property boom, as Americans are buying up homes quicker than ever before.
With the median home price looking to increase even further in the coming months, the recent property boom has been driven by several factors. In 2020, more than 3 million people left the American workforce and are now looking to retire. But for how long will this boom last, and can we expect the market to crash as price appreciation deflates and inventory levels decrease month after month.
What caused the recent real estate boom?
Many in the real estate market cannot directly pinpoint exactly what has caused the recent real estate boom, but several factors can be highlighted.
Low mortgage interest rates
Although interest rates have remained relatively low at the end of 2020, current mortgage interest rates according to Bankrate show weekly marginal decreases.
30-year fixed mortgage: 3.08%
15-year fixed mortgage: 2.37%
Jumbo mortgage rate: 3.09%
While the US economy makes a slow recovery, mortgage rates are closely connected to the overall success and progression of the economy. As the outbreak of the pandemic surged last year, and the economy came to a near halt - mortgage interest rates dropped significantly.
Increase of price appreciation
With the median home price jumping 13% higher than a year ago, price appreciation at the end of last year stood at 5.1% year-over-year. Now the rate of appreciation is more than two and a half times that. Although this might seem beneficial, the supply and demand of currently available listings can have a tethering effect on home appreciation.
More homes up for sale
Although most homeowners had to pause the sale of their property in 2020, the recent influx of new homes coming onto the market has also contributed to the real estate boom. Although currently there is a lack of active homes up for sale, with listings selling 35 days faster compared to a year ago. The market is now undersupplied, and data shows that new homeowners are looking to purchase their dream home in 2021.
Retirement and relocation
While more than 3 million people left the American workforce in 2020, a surge in new retirees and work-from-home employees are looking to leave big cities. Although larger metros have come back to life in recent months, increased crime rates have also played a role. More so, retirees are looking to leave the big city behind, and the large remote workforce wants to find a home where they can relax and start a family.
Owner and realtor, Jay Lesko of Iron Valley at the Beach has already mentioned, ‘146 Blocks, size of Delaware Coast, better value, homes close to the beach.’ Larger availability for retirees, and families looking to relocate to Maryland in the coming year. Homes for sale in Ocean City, MD are on the rise but are lacking in supply as an influx of new buyers enters the property market.
Decrease in unemployment rates
The Bureau of Labor Statistics published statistics related to the current labor market. The current number of unemployed persons at 9.7 million continues to trend downward. In March 2021, 11.4 million people were still unemployed, significantly less than a month prior in February 2021, where 13.3 million people were registered for unemployment benefits. More so, median expected household income growth has increased 0.4% to 2.8% in March, the best it’s been since January 2020.
Can we expect a crash in the real estate market?
Although the current property market is trending upwards, with several positive contributing factors - one thing may cause it to trend downward in the next few years. A slow supply and demand, and limited listings may have the market slowing its pace.
As the economy recovers from the lasting effects caused by the pandemic, we may see the real estate boom last another year or so, before we can pinpoint when a crash will occur. Until then, buyers and sellers are using the opportunity to purchase their dream home and ride out the boom.