The US housing market is so overheated that demand has exceeded supply that prices continue to hit record highs – and roughly half of all US homes are now sold above list prices.
Two years ago, before the pandemic, only a quarter of the houses sold above the seller’s asking price, according to real estate agent Redfin.
Several factors are driving the seemingly unstoppable rise in property prices. The pandemic has encouraged more people to seek the extra space that a single family home can provide. At the same time, COVID-19 has deterred many homeowners from selling their homes and opening them up to potential buyers, reducing the number of homes for sale.
Investors, including individuals buying second homes and wealthy Wall Street firms, are also buying more homes, which increases competition. According to the National Association of Realtors, investors bought 17% of the homes in April, up from 10% last year. The great millennial generation is also increasingly turning to home buying.
Daryl Fairweather, chief economist at Redfin, said demand exceeded supply even before the pandemic as developers struggled to build enough new homes. Builders now say the shortage of labor and lumber is limiting their ability to build.
New home construction fell in April after hitting a 15-year high a month earlier. “Overall, there is little evidence that property prices will slow their appreciation anytime soon,” said Matthew Speakman, an economist on Zillow’s real estate website.
The number of properties for sale was down 21% year over year in April to just 1.16 million, a record low from 1982, according to the National Association of Realtors. The falling supply has almost frenzied buyers. Real estate was on the market for just 17 days in April and 88% of homes sold had been on the market for less than a month, according to the NAR.
The largest increase was recorded in Phoenix for the 22nd consecutive year. There the prices rose by 20% compared to the previous year. San Diego posted the second largest increase with 19.1%, followed by Seattle with 18.3%.
Fairweather, the Redfin economist, said the real estate market could cool off in the coming months. With the spread of vaccinations and the decline in COVID-19, more sellers may be ready to list their homes.
Fairweather suggested that many Americans are likely to spend more money on services such as vacations, dining, and other entertainment, and less focus on new homes.
In fact, the number of people who signed contracts to buy houses fell in May and fewer people are applying for mortgages. New home sales fell nearly 6% in April, likely due to price spirals.
“At some point,” said Fairweather, “buyers just pull out and you get more stable price growth.” I think this is the climax, but it will be hot for a long time. It’s more like a plateau. “