Housing has lined up in favor of sellers for years now and it is due to a low inventory of homes available to purchase coupled with strong demand boosted by historically low mortgage rates.
The active inventory has been at low levels ever since 2012 and a few times has dropped to unprecedented lows. From November 2012 through May 2013, and from December 2017 through February 2018, there were less than 4,000 homes available to purchase. It has only occurred twice since 2004, until this year. The Orange County active listing inventory dipped below 4,000 at the end of October. The New Year will start with fewer homes than 2013. That means that the inventory in 2021 will be below 4,000 into the Spring Market.
Demand, the last 30-days of new escrow activity, is also currently at unprecedented levels. The Spring and Summer Markets from 2013 through 2019 have ranged between 2,500 to 3,200 pending sales. Today’s demand is at 2,621 pending sales, above the 2,500 threshold. It has not been this high at the end of November since 2012 when housing just came out of its Great Recession slumber and was sizzling hot. With mortgage rates at record low levels, below 3%, demand will remain elevated. The low mortgage rate environment is forecasted to continue throughout 2021.
Another way to gauge just how hot the market is today is to look at the spread between the supply of available homes to purchase and current demand levels. When the number of homes going into escrow is close to the number of available homes, it indicates a powerful market that leans heavily in favor of sellers. That is precisely where it sits today. The difference between the number of available homes and demand is only 848. It was at 2,765 last year and 5,166 just two years ago. The only other time that the spread between the inventory and demand dipped below 1,000 was between October 2012 through June 2013. That is also when home values appreciated rapidly. There were not enough homes available to satiate the voracious appetite of buyer demand.
It is not going to get easier anytime soon for buyers. Waiting is not the answer. Based upon today’s supply and demand, the longer a buyer waits, the more homes will appreciate. That will be the story in 2021 as well. Additionally, mortgage rates are at unprecedented record low levels. According to Freddie Mac’s weekly Primary Mortgage Market Survey® released on November 25th, the 30-year fixed remained at 2.72%, its thirteenth record low this year. Mortgage rates are not forecasted to go any lower in 2021. In fact, there is a stronger chance that they will slightly rise as the economy improves next year. Higher rates combined with higher prices does not work in a buyer’s favor.
ATTENTION BUYERS: Do not wait to purchase. Delaying a purchase will result in higher prices and higher mortgage rates, cutting into home affordability. The current housing market may be frustrating, but it would be foolish to wait and not take advantage of record-low rates and lower home values.
Reports on Housing: Stephen Thomas