The housing market. Whew. It’s like the wild, wild west out there! Particularly if you live in states like Georgia, Texas, or Tennessee, where an influx of buyers are competing over an extremely limited number of homes.
You may be wondering what to do about this ultra-competitive market and if you should try to take advantage of the high sales prices by listing your home. We’ll unpack what’s causing the current chaotic state of the market and our recommendations on what to do about it.
What is going on in the housing market?
It boils down to basic economics, according to Robby Scholes, “There’s no supply and demand — just demand.” The lack of available homes means that prices begin high – and often result in bidding wars that push the price even higher. According to the National Association of Realtors, resale prices for homes increased by 17 percent from March 2020 to March 2021.
As many employers have changed their models to incorporate working from home, Americans have decided to make changes as well. Namely, moving out of mega cities. People are leaving congested urban areas in search of a bit more space and a lower cost of living. Texas, Tennessee, and Georgia are all popular destinations at the moment. The slower pace of life, green space, and more “bang for their buck” when it comes to home and property size have proven irresistible to folks from metro areas who no longer commute daily to an office.
Additionally, the historically low interest rates are driving home prices higher. The lowest rates ever seen were in January 2021. People are eager to take advantage of the opportunity presented by the low interest rates, scoring comparatively low monthly mortgage payments.
Finally, more and more buyers are purchasing their homes with cash versus financing. As high-income individuals are selling their homes in states with expensive home prices and high property taxes, they are left with equity to cash out. Once their home sells, they can purchase larger houses in lower-priced markets.
Tax law also plays a role in the increased popularity of cash purchases. Recent laws reduced the ability for many taxpayers to itemize their deductions – which consist largely of mortgage interest and real estate taxes. That means the tax benefit of paying more interest is far less favorable. This pushes people to put more into principal from their cash reserves, which are effectively making little to no interest.
The local Triangle region is no exception to these trends. In May 2021, houses stayed on the market for an average of 12 days before a sale compared to May 2020, when homes lasted an average of 26 days. In May 2020, the region had upwards of 7,000 homes available for sale, while only 2,175 were on the market a year later. The average sales price was $330K in May 2020 and climbed to $401K by May 2021.
What does this mean for me?
Is now the time for you to sell?
It may be tempting – especially when you see how much a house down your street sells for – but we say no. “Your primary residence is not an investment,” said Brian Cook. “It’s a sanctuary where you can most enjoy your life. We wouldn’t advise selling unless your home is not right for you.”
Here’s why. If you do sell, you’ll either be forced to pay a sky-high price for a new residence or rent and hope the electrifying prices calm a bit. You might be waiting for years though, and rental costs can be higher than monthly mortgages for comparable homes. None of these options are ideal, so the wisest choice is to enjoy your little slice of heaven, even as its value increases every day.
What does the future hold?
If you’re holding your breath waiting for the other shoe to drop, so to speak, and home values along with it, you can let that breath out. “Home prices don’t really drop often, even though we’ve all been scarred from the big drop in 2008. In fact, home prices have only dropped nationwide two times in the past forty years. ” said Robby Scholes.
Our prediction? Prices will continue to climb higher, although at a much slower pace. The supply issue will continue since zoning approvals are so challenging for builders to obtain and supply costs are still increasing. Without the construction of new homes, there’s just not a large enough inventory of homes that cost less than $500K.
To add to this, a number of markets – the Triangle included – are no longer transient populations. Now, these areas have a net increase in population year over year. This cuts down on the sheer inventory of houses for newcomers. The bottom line is that there aren’t enough homes.
If you have specific questions about your real estate portfolio, schedule a call with our team.