What Is Going On With Home Prices This June?
If you have paid any attention over the last year, you may have noticed that home prices were through the roof. If you speak to anyone who has tried to sell their house in the past year, they will likely tell you that it sold almost instantly after it was listed! This is wild, especially considering that the country is exiting the COVID-19 pandemic and the economy is supposed to be in a slump.
In the past, it was common for houses to sit on the market for a while. Sellers would maybe receive a couple of offers at or under asking price, and they’d ultimately find someone to settle with. In recent months, however, the situation has entirely flipped into a seller’s market. It has been common for sellers to list their houses and receive several offers above asking price in the first few days, even! What caused this kind of crazy demand, and what is happening in the housing market now? This post will aim to answer both of those questions for you, as well as provide a little more context into seller’s and buyer’s markets. At the end of the day, timing is one of the most important factors to consider when buying or selling a home, as buying or selling at the wrong time can cost you thousands of dollars.
First, What is a Buyer’s Market and What is a Seller’s Market?
If you read our blog posts, you might remember that we wrote a whole post on this question alone late in 2021. Buyer’s markets and seller’s markets are very important concepts to understand when buying a house, and we did our best to fully lay it out for you in that post. Now, however, we just want to quickly glaze back over the concepts, so that you have a quick understanding of each of them as you read through the rest of this post.
A buyer’s market is one where the buyers have the power. In a textbook buyer’s market, you see houses selling for below their asking price, long amounts of time between listing and settlement, and sellers giving concessions to the buyers like replacing the roof or including appliances in the sale. Essentially, a buyer’s market is one where you want to buying your house, not selling it.
A seller’s market is the opposite of a buyer’s market. In a seller’s market, the sellers have all of the power. This is what we have recently been in in the United States. In a seller’s market, home prices sell for far above asking price or their assessed value, houses sell very soon after being listed, and buyers make concessions to the seller, like waiving the inspection, paying in cash, not requiring certain repairs, and settling immediately. This is not the optimal time to buy a house, as there is a chance you will sink your teeth too hard into something that you shouldn’t bite, due to all of the concessions you might have to make.
Have We Been In a Buyer’s Market or a Seller’s Market Recently?
Over the past year, we have been in a severe seller’s market. Home values have been inflating sharply, and they have been selling even further above those values. Some sellers have been pricing their homes higher than they ever thought imaginable, and are then selling them even further above that asking price! Over the past few months, it has been really hard to be a buyer, because other buyers have been offering far above asking price, have been waiving standard requirements, and have even offered to pay fully in cash. Unless you have a few hundred thousand dollars laying around in cash, it has not been an easy time to buy a home.
At times and in certain places, buying a house over the past year has actually been impossible. In certain markets, buyers have been unable to buy a house unless they offer at least 10% above the asking price and pay in cash. Paying in cash is simply not feasible for most people, and these conditions are extremely unfavorable to buyers in any case.
What Caused The High Demand That Created The Seller’s Market?
There is no one factor that caused the astronomical home prices that we have been seeing over the past year. There are a few key ones, though, that have definitely played a large role. The record-low interest rates, the mass relocation due to the pandemic, supply chain shortages, consumer preferences, and the world-shattering inflation are five factors that have played a major part in driving up home prices. How is that the case?
1. Massive Relocation Due To The Pandemic
Firstly, let’s start with the massive relocation driven by the pandemic. Many people have been met with a new and unforeseen reality: they will never have to go back to work again. Or, rather, they will never have to leave their home to work. Many people who worked in offices have since been told that they will be allowed to work from home indefinitely. This newfound freedom has driven many people to make the jump from living in downtown apartments where they work to living in a big house in the suburbs of a cheaper city. Someone with a job in Boston, for example, typically makes a lot more than someone doing the same exact job in Missouri due to the elevated cost of living.
So, if someone with a Boston salary is told they don’t need to be in Boston anymore for work, there is a good chance they will look to leave Boston and move to a cheaper city where their money goes much further. As someone making $120,000 in Boston has much more purchasing power than someone making $60,000 in Omaha, the Bostonian is able to offer far above asking price and close on a house sooner than the Omaha native.
This trend has been happening all over the country, as people have been rapidly fleeing expensive places like California, New England, and New York to move to less-populated, up and coming cities in states like Ohio, the Carolinas, Colorado, Arizona, and the Dakotas. In the process, this massive population shift has drastically altered the housing market and priced locals out of buying homes in their communities.
2. Rapid Inflation Due To Government Spending
Secondly, let’s take a look at the rapid inflation. Inflation, for those who do not already understand the concept, is the idea of prices rising over time. As time goes on, money is worth less. In the 1950s, you could get a Coke for a dime at the convenience store. Now it costs over two dollars in many places! This is inflation happening right before your eyes. Inflation is a really complex economic activity, and there is not a singular factor that causes inflation to occur. There are several that play into it, though!
One of those is government spending. Over the past couple of years, the government has chosen to spend large amount of money on surprises that came up out of nowhere. The COVID-19 pandemic came first, causing the government to offer stimulus packages to citizens and businesses to try to keep the economy afloat. After that, the Russian invasion of Ukraine cause the government to send hundreds of billions of dollars of aid to Europe. All of this government spending, for better or for worse, causes taxes to go up, which causes prices to go up. Companies have to make a profit, after all!
Regardless of the source, inflation has partially caused home prices to skyrocket over the past year. Just as gasoline has risen to over four dollars per gallon across the country, so too has the cost of buying a house. It really is that simple, partially!
3. Supply Chain Shortages Limiting The Building Of New Homes
Thirdly, the supply chain shortages have played a large role in the elevating home prices. New homes have become extremely hard to build, as homebuilders simply can’t get the materials that are necessary to build a house. Whether it is windows, doors, flooring, or shingles, there is an international shortage of goods that are required for homebuilding. As a result, many people have been driven to buying pre-owned homes, as they are the only option on the market right now!
Basic economics will tell you that decreasing the supply will raise the price as long as the demand stays constant. The decreased supply of new houses has caused people to look at buying houses that are already built, consolidating the demand for houses into just one niche. We have already talked about the increased demand due to relocation, meaning that the price was theoretically due to rise even further. If you haven’t gotten the point yet, it did rise!
4. Record-Low Mortgage Rates
The fourth major component that has caused housing prices to rise is the record-low mortgage interest rates that lenders have been offering. There are a lot of factors that go into the interest rates that lenders offer, but the main point here is that the economy was in a really weird place for a while, and lowering the interest rates was one of the outcomes. The Federal Reserve, which is basically the national bank of the United States, sets its own interest rates, and the rest of the banks in the country have to pretty much follow in lockstep. The Federal Reserve lowered its interest rates, which caused the mortgage lenders to also lower their interest rates.
When the homebuyers caught onto the fact that banks were offering the lowest mortgage rates ever, they decided to take the jump and buy a house. These low mortgage rates, coupled with all of the other factors that we have mentioned already, drove the demand for houses way up while the supply stayed pretty stagnant. Again, referencing economics, when supply goes down and demand goes up, prices are going to skyrocket. It is just how things work!
5. Personal Preferences Shifting Toward Homeownership
The fifth and final major driver of price that we have identified is the shifting consumer preferences in the market. Simply put, more people are deciding to live in houses rather than apartments. This may be because the population is aging in certain ways, as a certain segment of the population may be coming of age and all deciding to buy houses at the same time. It may be due to other external factors, like increasing violence in crime in many urban areas. Many people living in cities rent their homes rather than owning them, and as people evacuate the major cities, it makes sense that a higher proportion of people are looking to buy homes.
On top of that, rent prices across the country have been rapidly increasing, just like home prices. Many people have come to realize that if they are going to be shelling out such a large proportion of their income each month to pay rent, they might as well buy a house and build equity with the payments. All of these factors come together to drive up the prices, as demand skyrockets even further. As we have already discussed, increasing the demand while holding supply constant makes the prices increase, putting the market into the position where it has been over the past several months.
What Is Happening In The Housing Market Now?
While the country saw some crazy things happening in its housing market over the past year, it seems like the home buying craze is starting to slow down. In many major markets, home sales have drastically reduced, and sellers are actually beginning to have a tougher time selling their homes. Many experts use the term “leveling out” to describe what is happening in the housing market. While not everywhere in the country is seeing the end of the housing boom, bit by bit the boom is drawing to a close around the nation. In some major cities, houses are once again taking weeks or longer to sell.
Based off of the definitions that we provided earlier, you could say that we are exiting the seller’s market. Key factors like average selling price, average listing time, and purchase concessions are shifting away from being in the sellers’ favor and back into a more favorable situation for the buyers. It is important to note that this operates on a spectrum, and there may not be an identifiable, indisputable moment that marks the shift. Really, it may just be that over time, the conditions begin to favor the sellers less than they did during this recent, big boom.
There has also been speculation as to whether or not there is a housing bubble that is going to pop. Just like what happened during the Great Recession in 2008, many experts think that the housing market might pop, and property values will rapidly decrease. There is no way of really knowing this before it happens. We are not financial experts, and we will not advise you whether or not you should sell your home, but we will happily help you to do so if you make the decision to sell! The market conditions would dictate that now might still be a good time to sell, as property values are still quite high. While we might be exiting the seller’s market, that does not necessarily mean that we are entering a buyer’s market. There is certainly space in the middle, where the market is in equilibrium and neither sellers nor buyers have a big leg up.
Thanks for reading our post about what is going on with housing prices recently in the United States. We hope that this post has been helpful and informative as you go through the home buying or home selling process. There is so much to understand when you look into buying or selling a home and making a misstep can cost you thousands of dollars. Timing is one of the most important aspects of buying or selling your home, too, as taking the wrong action at the wrong time can cause you to miss out of thousands of dollars of value, either in terms of extra cash when selling a home or savings when buying one.
If you visit Myrtle Beach or any other place in South Carolina and fall in love, we’re here to help. We at The Boyd Team are committed to helping you find the right property for your needs and dreams. Any question that you have about moving to the area and finding your dream home by the beach is our pleasure to answer. Feel free to send us an email at eddie@boydteam.com or text or call us at (843) 222-8566, and we will get back to you as soon as we can. Being true natives of the Grand Strand and Horry County and with over 25 years of experience in the local real estate market, whether buying or selling, we can help you make your dreams a reality.
No One Knows The Grand Strand Better! Trust, Knowledge, Experience, Professionalism, You Can Count On!
