Fall Housing: From Boiling Over to Just Hot

The frenzied pace of the housing market has started to abate, but that means that instead of boiling over, the market is just hot. For the second consecutive month this year, Existing Home Sales were down from a year ago, 2.3 percent below the September 2020 rate, despite a 7 percent surge month-over-month.

Although the pace of activity is edging lower, prices continue to remain elevated. The median home price for an existing home in September was $352,800, slightly below the previous month, but up 13.3 percent from a year ago. If you can believe it, this data point was seen as a positive, because the pace of annual price growth has decelerated from a sizzling 23 percent in May and June.

The culprit for high prices is not just demand, but also supply: the number of homes for sale (inventory) is down 13 percent from a year ago. Unsold inventory sits at a 2.4-month supply at the current sales pace. The good news is that inventory is higher than the record low of 1.9 months, recorded in December 2020, but it is still below what is considered “healthy,” which is more than six months.

Until more people are willing to list their homes, many hopeful buyers are turning to newly constructed dwellings. September data will be released in the week ahead, but as of August, New Home sales made up 27 percent of all single-family sales, the largest share since records began in 1982. Builders have been trying to keep up with the demand, especially as the cost of materials has come back to earth. The inventory of New Homes has increased to over 6 months, but that expanded supply has not kept prices at bay: the median price for a new home was $390,900 in August, a 15 percent increase from a year ago.

Although mortgage interest rates remain relatively low, these price gains are making a home purchase less affordable. The Federal Reserve Bank of Atlanta has developed a tool, which presents a national view of affordability for the median home owner. As of July, a typical household would need 32.1 percent of its income to cover mortgage payments on a median-priced home, the highest share since November 2008.

Compounding the problem is the fact that first time buyers have struggled to compete with those who are armed with cash and no contingencies. Nearly 23 percent of homes sold for all-cash in September, which has contributed to properties being snapped up quickly. The average time for selling an existing home was 17 days in September, and 86 percent of all sales took less than a month.

First-time buyers are also struggling to find lower priced homes. Existing Homes that sold under $250,000 represented just 29 percent of all transactions in September, down from over 40 percent two years ago.  As a result of these market conditions, the share of first-time buyers who were able to complete a transaction, has dropped to 28 percent, a six-year low and far below the 36 percent in April 2020.

Housing is a zero-sum game, so the struggle for buyers means that sellers are sitting pretty. “This autumn season looks to be one of the best autumn home-sale seasons in 15 years,” said Lawrence Yun, NAR’s chief economist. As a gentle reminder, if you are preparing to put your home on the market, know that the advantage can shift quickly, so don’t be a pig!

For buyers, my advice on purchasing a home remains the same: crunch the numbers! Consider whether buying might preclude you from addressing other important financial issues, like paying down student loans or saving for retirement. Begin your calculations by plugging in mortgage principal and interest, homeowners' insurance, and taxes, upkeep, and maintenance (experts suggest 1 to 3 percent of the purchase price, depending on the age of the house and its condition), and closing costs, which can add an average of about $6,000 or more in some markets. After considering all of this, you may find that renting is more viable for you.