The Week in Review: April 5, 2021
A Housing Bonanza
The pandemic has created distortions in the economy that have aided some sectors and hurt others. One sector that has benefitted enormously has been housing. Sales have been strong, housing construction has accelerated, and housing prices have soared.
Rising home prices are a mixed bag. Homeowners see the value of their property rise, but first-time buyers are growing increasingly frustrated.
What’s behind the surge in prices?
For starters, mortgage rates fell to a historic low last year, with the 30-year fixed mortgage rate spending much of the second half of last year and early 2021 below 3%, according to Freddie Mac’s weekly survey.
Second, a low inventory of homes for sale has led to bidding wars, while mortgage forbearance programs have helped prevent forced sales and foreclosures.
The pandemic has also led to a furious scramble to buy second homes, according to an April 1 story in the Wall Street Journal. It’s eating up supply at a time when inventory is already low.
The graphic below illustrates what has happened to home prices since 2000. The left-hand side of the graph is the home price index. We see the price collapse that ran from 2007 to 2011. The index also reflects the recent acceleration in prices.
The right-hand side of the graph simply provides us with the percent change in the index versus one year ago. In January, prices were up 11.2%, the fastest year-over-year gain since 2006.
But are we in a similar predicament that wrecked the housing market 15 years ago? Sales are showing signs of leveling off amid the lack of homes to choose from. Further, rising mortgage rates and higher prices are pinching new buyers.
Yet there are differences today versus the prior boom. During the 2000s, homes were quickly being built, and it was much easier to get a mortgage.
As the Wall Street Journal pointed out in March, mortgage underwriting is stricter, down payments are higher, and tight supply is supporting prices.
If you have any questions or concerns, please let me know.
Two for the Road
Today, there are more real estate agents in the U.S. than homes for sale. The National Association of Realtors had 1.45 million members in January, while there were currently 1.04 million homes for sale. —The Wall Street Journal, March 21, 2021
According to the NCAA, if you were to simply guess, the odds of filling out a perfect bracket are 1 in 9,223,372,036,854,775,808 (9.2 quintillion). If you know a little something about basketball, your odds improve to 1 in 120.2 billion. —NCAA, March 17, 2021
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