One year later, looking at the U.S. property market again, I was no longer surprised by the still soaring prices, but began to look for the logic behind the relationship and the future trend of the property market.
A year ago, two months after the outbreak of the epidemic in the U.S., I wrote an article about the soaring house prices in the U.S. “Why are the house prices in the U.S. rising instead of falling despite the economic downturn? Perhaps that’s when buyers stopped trading with the value of the house itself and instead became a frenzy of price comparisons between buyers. This should not be the price logic of a healthy market. Only, a year later, as the epidemic continues in the U.S. and the way people work changes, the crazy heat of the housing market does not subside and becomes even more distorted.
The small town of Ridgewood, New Jersey has the three characteristics of a hot property market: it has a downtown, a train station (meaning direct access to Manhattan), and a top-ranked school district. In Ridgewood, in addition to the crazy rise in asking prices, the average sale price this year is up 10% from the asking price. At the same time, homes are closing at an eye-popping pace, with a listing that still looks good commonly going directly to contract on the day it hits the market. This means that buyers involved in the price wars did not have enough time to examine the surrounding conditions of the house or even the house itself before making a hasty offer. The buyers’ frenzy, in addition to their anxious mindset, may also have fallen into the usual tricks of real estate agents to some extent. Monica, a local agent with over 20 years of real estate experience, complained to me that many sellers’ agents now attract more potential buyers by lowering the asking price, and then let these buyers compete with each other to make the final price much higher than the value of the house itself.
But are these homes really “priced out” of the market? I don’t think so. On the zillow website, if you search for a listing, the price increase is usually more than 30%, and some even reach 200%. Sellers up red, buyers kill red, this is the current U.S. housing market to me the feeling. “The situation is just like the housing bubble in 2006.” Monica speaks quickly and indignantly. In addition to her role as a real estate agent, she is also a personal property investor. After a price war, she was about to put up $1 million for a property in Florida when the seller gave her a short notice to raise the price by $100,000.
New Jersey’s crazy prices are not an isolated case. According to Corelogic data, home prices across the U.S. rose 11.3% year-over-year in March this year, the highest annualized increase since March 2006. The reason for the big rise is basically the same as it was last year at this time, namely a change in supply and demand. The number of sellers is down, but buyer demand is getting stronger by the day. According to Redfin data, homes brought to market this April plummeted 40% compared to the same time last year and 50% compared to 2019. This has led to a 20% increase in home prices since last year. Home prices climbed to their highest point since 2006 last year and are expected to continue unabated this year.
In addition to buyers who urgently need to buy a home to solve real problems such as schooling, potential buyers who are not yet in a hurry to dive headlong into the property market but still have a need to buy a home are always looking for an early end to the epidemic to ease the distorted prices in the property market. But even if the epidemic eases this year, can the property market really cool down? I think property prices will remain high at least until next year.
For one thing, the ongoing epidemic is changing the way people live, making suburban single-family homes with their own backyards more attractive. People are starting to “getaway” from the steel jungle of Manhattan apartment buildings and moving to the surrounding areas and even the central and southern parts of the US. This, coupled with the fact that the housing market’s immediate demand will not diminish, will not improve the supply and demand relationship in the near future. Meanwhile, millennials (25-34 age group) are replacing the 35-44 age group as the main home buyers and accelerating the shortage in the US housing market. According to a report by investment bank Jefferies, there is currently a shortage of 2.5 million homes across the United States. And builders may have to build another 1.7 million to 2 million new homes to meet the demand of millennials to buy homes.
Second, the Fed’s low interest rates are good for the housing market. Despite this week’s tentative rate hike comments from U.S. Treasury Secretary Yellen piggybacking on the stock market, it is unlikely that the Fed will tighten its easing this year, either with Biden’s fiscal spending plan or the Labor Department’s less-than-expected April jobs data. expectations for the Fed to start raising rates in late 2022 or 2023 are more reasonable. Home buyers are facing an influx of more home buyers while enjoying the benefits of low Fed interest rates. At a time of insufficient supply, I really don’t know if this is a benefit or not.
Third, the rise in raw materials. U.S. stocks in the timber sector in recent months soared, one of the main reasons from the hot real estate market soaring lumber prices, supply can not meet demand. (Lumber stocks are a good direction to invest in these days). Even though builders are planning to build more homes, the shortage and soaring cost of lumber is a situation that cannot be ignored. Since April 2020, the lumber shortage has sent lumber prices soaring by nearly 200% and caused new homes to sell for an average of $24,000 in the last year.
To buy a home, but the cooling of the housing market does not see the light of day, I have changed my mind after several rounds of house hunting, no longer just looking for cost-effective properties, but “as you wish”: like it, then go to bid, otherwise, may not even have the opportunity to spend money.