By David DiMolfetta
Prospective homeowners are competing in a housing market dominated by high demand and limited supply, forcing housing prices up at a rate not seen in years, according to a Wall Street Journal report.
The S&P CoreLogic Case-Shiller National Home Price Index, an indicator measuring average home prices in major city areas across the U.S., rose 11.2% in fiscal year-end for January, the largest growth since February 2006.
The boom has benefitted current sellers and homeowners but has burdened first-time buyers and others with less income. 39% of homes that went under contract at the end of February sold for more than their list price, up from 23.9% a year earlier, according to data from real estate brokerage Redfin Corp.
“The houses are flying off the shelves,” Monika Prasai, a real estate agent in San Diego, told the Journal. “You have buyers who are ready and willing to move, but it’s difficult to find them something because there is no inventory.”
With this thickening demand, mortgage rates are steadily increasing. The average rate on a 30-year fixed-rate mortgage was 3.17%, the highest level since June, according to Freddie Mac data published by the St. Louis Fed.
In March of last year, the 30-year FRM averaged 3.29%. Freddie Mac Chief Economist Sam Khater said that while the figure is on par with a year ago, purchase activity has “cooled off” in recent weeks. Still, the government-sponsored mortgage enterprise expects sales to be strong going into the spring.
Khater said that home purchasing would be in-part fueled by Federal Reserve policy.
“The Fed has seen the carnage from the last crisis, and they don’t want to pre-empt the recovery by starting to raise rates and choking off that nascent recovery.” Federal Reserve Chairman Jerome Powell has frequently reaffirmed the Fed’s policy on keeping interest rates low to stimulate the economy.
Norada Real Estate Investments said in a Feb. 18 report that there are no indications that broader home price growth will slow.
“Zillow Economic Research predicts that annual home value growth will rise as high as 13.5% by mid-2021 and for home values to end 2021 up 10.5% from their current levels,” Norada said. “Their forecast also calls for sales volume to remain elevated in the coming year, finishing 2021 at 6.9 million sales, the most since 2005.”
Around 1.04 million homes went up for sale at the end of January, a drop of 26% from last year, according to data published by the National Association of Realtors (NAR) on Feb. 19.
“Sales easily could have been even 20% higher if there had been more inventory and more choices,” said Lawrence Yun, NAR’s chief economist in a statement.
