Fueled by record-low mortgage rates, the 2021 housing market is off to a strong start with low supply and impressive demand.
Culture teaches an important lesson in economics: limited supply met with raging demand is a recipe for a hot market. Most people remember the 5-hour lines at Disneyland’s opening day of Star Wars: Galaxy’s Edge and the difficulty of getting tickets to the opening day of Avengers: Endgame. With limited available tickets and widespread interest, fans had to act fast and hope to be one of the lucky few who snagged one.
Record low supply and skyrocketing demand due to low mortgage rates mean this same phenomenon is currently happening in the housing market. Homes are selling fast, and values are increasing. The 2021 market has started strong, with prospective buyers racing to find their dream home amid fewer options and increased competition.
Today’s supply of homes is at its lowest since tracking began in 2004.
Before this year, the previous record low for home supply was 3,161, recorded in January 2013. Today, the number of homes on the market sits at 2,633—17% below the all-time low. This lack of supply has significant effects, especially at a time when demand is high.
For context, this time last year there were 3,901 homes available, 48% more. The low supply, paired with an unusual amount of demand, has created a Hot Seller’s Market.
Most homes will only spend 42 days on the market after the initial listing.
A 42 day Expected Market Time is fast, especially for this time of year. The closest comparable year was 2013 when the Expected Market Time was at 47 days in January. Less time on the market means there is more competition for buyers. For sellers, receiving multiple offers on a home is typical.
High demand is driven by continued low mortgage rates.
According to the Primary Mortgage Market Survey conducted by Freddie Mac, mortgage rates have hit the 17th record low since March as of January 7th. Current rates have dropped to 2.65%, fueling a spike in buyers flooding the market.
This downward trend in mortgage rates has been occurring for the past 10 months. In July of 2020, rates dropped below 3% for the first time. While rates are expected to climb as the year progresses, the current record lows are a great opportunity for buyers.
What should buyers and sellers do?
- Buyers: Don’t wait for the market to get easier. – Despite the hot market and limited supply, now is the best time for prospective buyers to act. Home values are rising, and mortgage rates are likely to do the same. Rates are low now but are predicted to jump to 3.5% by the end of the year. Waiting only means prices will increase.
- Sellers: List your home’s price close to fair market value. – The biggest mistake sellers make is assuming a Hot Seller’s market means they can raise prices. While this market does give sellers the advantage, overpricing will result in fewer offers and means you’ll miss out on an initial influx of buyers when your home hits the market. This strong start is what creates a bidding war that drives your home above the asking price. Listing it high to start will ruin your chances to attain the highest price possible.