The housing market is crazier than it's been since 2006
Limited inventory, low interest rates and bidding wars are driving prices sky-high
Less than a day after real-estate agent Andrea White listed a three-bedroom home for sale in Sacramento, Calif., in March, she received an all-cash offer. The buyer -- who had not even seen the home in person -- was ready to pay $520,000, Ms. White said. That was $21,000 above the asking price and 37% more than the seller had paid for the ranch-style home only two years ago.
Accepting the offer was the easy part. Ms. White then had to call 17 other agents who had scheduled tours of the house to let them know it was off the market.
Ms. White, who works for brokerage Redfin Corp. and has been an agent since 2014, has never seen anything like the sales mania gripping her Northern California city. "It's exhausting," she said. "I'm speechless. It's heartbreaking for buyers; it's celebration for sellers."
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The past year has been the hottest for sales activity in 14 years. Home values are rising in practically every corner of the U.S., and median sale prices in dozens of metro areas have posted double-digit percentage increases from a year ago, according to Zillow Group Inc. In Boise, Idaho, the median sale price rose almost 25% in January from a year earlier, while in Stamford, Conn., it rose 19%.
"Prices are up virtually everywhere," said Mark Vitner, senior economist at Wells Fargo & Co. "It is surprising to see home prices rebound this quickly, by this magnitude, this early into an economic recovery."
While the pace of home price gains has been dizzying, it's not hard to understand what is driving the frenzy. Mortgage rates sit near historic lows. Millions of millennials are entering their early 30s, the typical age of first-time home buyers. And the pandemic has spurred new demand: Some buyers want more space to work from home while others are willing to move farther from their offices. Many workers who kept their jobs in 2020 were able to save up for down payments due to stimulus checks, forbearance on student loan payments and less spending on travel and entertainment.
Supply, meanwhile, has never been tighter. New-home construction plummeted during the 2007-09 recession and remained low in the following years. Homeowners are also staying in their houses longer, in part because aging baby boomers are staying healthier later in life and choosing not to downsize. The number of homes for sale in March was roughly half of what it was a year ago, according to Realtor.com. In Austin, Texas, Jacksonville, Fla., and Raleigh, N.C., the year-over-year inventory decline topped 70%. ( News Corp, parent of The Wall Street Journal, operates Realtor.com.)
The market has rarely been this competitive, especially for first-time home buyers or those with limited budgets. Bidding wars are common, and new listings don't last for long. Nearly three in every four homes sold in February sat on the market for less than a month, according to the National Association of Realtors.
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Single-family house prices across the nation rose 12% in January from a year earlier -- marking the biggest annual increase in data going back to 1991, the Federal Housing Finance Agency said this week. All nine regions of the country tracked by FHFA posted year-over-year price gains of more than 10%.
In February, the median existing-home price rose 15.8% from a year earlier to $313,000, NAR said.
But even with house prices rising quickly, many homeowners are reluctant to sell because they worry about competing for another home in the same market, said Daryl Fairweather, chief economist at Redfin. With mortgage rates so low, many households decided to refinance last year instead of moving.
More inventory could come on the market this spring, which is typically the busiest season for home sales, real-estate agents say. But there are unlikely to be enough new listings to cool the market. Nationally, there was a two-month supply of homes on the market at the end of February, according to NAR, near an all-time low.
Even high-priced cities where sales plunged last spring are showing signs of growth. Manhattan co-op and condo sales in the first quarter of 2021 exceeded year-earlier levels for the first time in four quarters, according to brokerage Douglas Elliman. In San Francisco, home sales in February rose 19% from a year earlier, according to Redfin.
Home builders are trying to increase construction to meet the booming demand. New construction has rebounded from its recession-era lows in recent years, but the nation still has a shortage of millions of units. Home-building activity slowed last spring and ramped up over the summer. But the construction pace is limited by high lumber costs, material bottlenecks and a shortage of land and labor, according to builders and economists. Buying interest is so strong that many builders are restricting how many homes they sell at a time. They want to make sure they don't sell more than they can build.
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Economists and executives expect demand to remain robust this year, and they anticipate the demographic-driven strength to continue for years as the large millennial and Gen Z generations get older. Still, there have been some recent indications that price growth could slow as more homes come on the market. Rising mortgage rates -- which sit at the highest level since June and have been climbing steadily in recent weeks -- could price some buyers out of the market later this year.
Even buyers exhilarated by the prospect of owning their first home have been wiped out by the undertaking. Samantha and Doug Hawkins, both 32 years old, moved out of their one-bedroom apartment in Boston when the pandemic struck and into Ms. Hawkins's parents' house. They built up their savings by not paying rent, and Ms. Hawkins paid off her student loans.
But when they started house hunting late last year, they found it tough to compete against other bidders. They were told that sellers wouldn't consider offers with down payments of less than 20%, said Ms. Hawkins, who works in human resources.
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After increasing their budget and expanding their search area, the Hawkinses had their sixth offer accepted in March, for a four-bedroom house in Westford, Mass., farther from Boston than they had originally looked. They're under contract and expect the deal to close in June.
"We're really proud that we're able to do this, and excited to take the next step in our lives," Ms. Hawkins said. "But to have it be such a competitive market.... It's just taken a little bit of the joy out of the process."