The Housing Mania Is Back By Brett Eversole
2021 was the worst year in our lifetimes to try to buy a house. It was a time of low interest rates and easy money. The government and the Federal Reserve were still pumping trillions of dollars' worth of stimulus into the pandemic-shocked economy. Many folks were flush with cash. And that fueled a craze in the housing market... Bidding wars became the norm. Homes were selling within hours of listing... not weeks, or even days. And buyers often had to offer tens of thousands of dollars above the list price to beat the competition. In simple terms, it was one of the hardest markets on record to actually buy a home. There were far too many buyers and far too few homes to satisfy demand. That frenzy subsided last year. The Fed turned off the easy-money spigot to tackle runaway inflation. But now, fortunes are reversing yet again... And if this trend keeps up, we could soon enter another boom in home prices. Let me explain...
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The flood of demand for homes eased a bit last year. But homebuyers didn't find much relief. Interest rates soared, causing mortgage rates to more than double. Housing affordability crashed as a result. So it might have gotten easier to buy a home. But finding one you could afford... that was still plenty difficult. As I explained last week, home prices haven't dropped much. Mortgage rates are also still darn high compared with 2021. And now, demand appears to be pouring back into the market. That's according to Redfin, a major real estate company and industry data provider. The company publishes an indicator called the sale-to-list ratio. This ratio is 1 when homes are selling for their original list prices. It's below 1 if homes are selling below their list prices... And it's above 1 when homes sell for above listing. Not surprisingly, homes were typically selling above their list prices during the 2021 mania. Last year's cooldown brought prices down. But now, we're inching back above the dreaded "1" level. Take a look... 
The sale-to-list ratio slightly lags what we'd expect. It first rose above 1 in late March 2021. And it didn't drop below that level until August 2022. The ratio then stayed below 1. Sellers were accepting offers below list prices. But now, that has changed. The ratio broke above 1 at the end of June... And it only slightly fell below that level in late July. This means we've moved from a buyer's market to a seller's market once again. Sellers don't have to take discounted offers anymore. And if the trend continues, we could soon see the return of bidding wars. That's bad news for homebuyers. Unlike in 2021, mortgage rates remain incredibly high. So buyers will have to fight both low affordability and a slew of other buyers. Of course, the trend could change. But the big problem in U.S. housing hasn't gone away. We're millions of homes short of what we need... It's a simple supply-and-demand issue. That makes the revival of the seller's market unsurprising. And it also means that a housing crash isn't coming. Instead, we're on the verge of a 2021-style boom. Good investing, Brett Eversole Further Reading "The housing market weathered the storm better than most imagined possible," Brett writes. After a slight dip, home prices are rising again. Plus, sentiment is finally turning around. That means the worst of the slowdown is behind us... Learn more here. "A much larger and even more fundamental trend is going to decide the ultimate winners and losers in the housing market," Brett explains. Not all U.S. markets will move in unison. And the biggest shift goes far beyond the battle between east and west... Read more here. |
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