As pandemic restrictions lift and more of the country flings the doors open, the real estate market appears to be shifting back to more normal patterns.
Home prices remain high, but supply is increasing which means competition for homes on the market is cooling down a little.
Here’s what to expect during the third quarter in the real estate realm.
Homebuyer competition will ease
Competition among buyers has been at a fever pitch for more than a year as people looked to relocate during the pandemic, but relatively few houses were available for sale. That meant that properties were flying off the market, and dozens of offers on a single listing were the norm in some locations.
“Pre-pandemic there was some normal sales activity, then we declined during the lockdown and then had a huge surge,” said Lawrence Yun, chief economist at the National Association of Realtors (NAR). “The surge phase is over.”
The reduced competition is thanks to increasing housing supply as, one one hand, builders catch up on their projects and, on the other, more older homeowners become willing to list their properties and invite prospective buyers in for showings.
The St. Louis Federal Reserve Bank reports that there was a 2.5 month supply of homes as of May, up from the pandemic low of 1.9 months in December, but still well below the six-month supply that NAR targets for moderate price appreciation. These numbers mean that at the current rate of sales, the number of homes on the market would be sold in that number of months if no new listings became available.
Yun added that the end of national forbearance protections could boost the housing supply as well, because some homeowners will sell properties they can no longer afford to live in.
Home prices will stay high
Although rising supply will reduce competition, home prices are unlikely to recede after spiking significantly over the last year.
“High home prices are here to stay, which means that those people who purchased last year or are long-time homeowners, are seeing a sizable gain in their wealth,” Yun said. “But the opposite side of the coin is that first-time buyers are struggling to come up with a down payment for these expensive, higher-priced homes.”
According to NAR, the median home price rose to $350,300 in May, up 23.6 percent year-over-year. In May 2020, the median home price was $283,500.
While that’s great news for sellers, and reduced competition will give buyers a bit of a boost, it’s still going to be a tough market for would-be homeowners.
“Some people who still would like to buy, they’re getting squeezed out,” Yun said.
In May, NAR reported 5.8 million existing home sales, down from the previous months and closer to pre-pandemic levels.
Mortgage rates will keep creeping up
Although rates will still be low by historical standards, the days of sub-3 percent mortgage interest are probably behind us for the foreseeable future.
“Longer-term interest rates, including mortgage rates, jumped earlier this year as vaccinations began and the government pushed more fiscal stimulus into the economy,” Mike Fratantoni, chief economist and senior vice president of research and industry technology at the Mortgage Bankers Association, said in a statement. “While the Fed has not yet laid out specific plans with respect to tapering their Treasury and MBS purchases, the changes in their forecasts for the economy, and for their rate target, suggests that tapering is close at hand. As a result, mortgage rates are likely primed to move at least somewhat higher.”
Yun agreed, adding that rates could very possibly be near the 3.5 percent mark by the end of this year.
Although even 3.5 percent is low compared to historical mortgage rate trends, any rise in interest coupled with already-high home prices could further squeeze housing affordability, especially for first-time homebuyers.
Advice for homebuyers
If you’re looking to get into the housing market in the next few months, Yun said, you’ll probably be in a better position than you would have been if you jumped in sooner.
“It’s been difficult, but maybe that patience will pay off in terms of having more choices and not having to make a hurried decision,” he said. “I think we will see much less prevalence of multiple offers, the homebuyers can take their time in deciding and not have to rush to make their decisions.”
Even so, flexibility on the buyer’s part will be important. The housing market has a ways to go to eradicate the shortage and competition is likely to remain stiff, if not quite as roiling as it has been.
Yun suggested that prospective homebuyers consider a larger geographical area than they may have before the pandemic, especially if their employer allows for remote work flexibility.
Advice for homeowners and sellers
On the seller side, the key question will be how to price your property.
In the face of a still-hot market, owners may be tempted to list their home for an astronomical price. But, Yun said, as housing supply increases, buyers may be better positioned to drive a harder bargain.
“If it’s overpriced and the days on the market lengthen, people will view it as something wrong,” Yun said. “Home sellers will get greater scrutiny from buyers, which makes it more difficult to get the sale.”
For homeowners, meanwhile, rising mortgage rates will mean dwindling opportunities to benefit from a refinance, so acting quickly will be the key to maximizing savings.
“Mortgage rates are still lower than anything seen prior to last summer. Homeowners can take advantage by refinancing a mortgage, reducing the monthly payment, and saving tens of thousands of dollars over the life of the loan,” said Greg McBride, Bankrate’s chief financial analyst.
The housing market is likely to be on a slightly more even keel in the third quarter. Housing supply is poised to tick up, which will ease competition among buyers.
Even so, still-high prices and rising mortgage rates could squeeze affordability, and buyers are still likely to have to compete amongst themselves on most purchases.