Patience Is the Key to Buying a Home This Year

<article class="post-2120 post type-post status-publish format-standard has-post-thumbnail hentry" id="post-2120"><span class="entry-date">April 28, 2021</span><div class="entry-header center-block text-center"><h1 class="entry-title">Patience Is the Key to Buying a Home This Year</h1><div class="shareBlock"><div class="shareTitle">Share</div><div class="shareIcons"><a aria-label="Twitter Share Link" class="twitter solid display-inline-block" data-tracking="Post,Social Post Link Clicked,Twitter" href="http://twitter.com/share?text=Patience+Is+the+Key+to+Buying+a+Home+This+Year&amp;url=https%3A%2F%2Fgilliggroup.com%2Fblog%2Fpatience-is-the-key-to-buying-a-home-this-year%2F" target="_blank"><span class="force-hidden">Twitter</span></a>
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<p><img alt="Patience Is the Key to Buying a Home This Year | Simplifying The Market" class="webfeedsFeaturedVisual wp-post-image" decoding="async" link_thumbnail="" loading="lazy" sizes="auto, (max-width: 549px) 100vw, 549px" src="https://files.simplifyingthemarket.com/wp-content/uploads/2021/04/27160508/20210428-KCM-Share-549×300.jpg" srcset="https://files.simplifyingthemarket.com/wp-content/uploads/2021/04/27160508/20210428-KCM-Share-549×300.jpg 549w, https://files.simplifyingthemarket.com/wp-content/uploads/2021/04/27160508/20210428-KCM-Share.jpg 750w" style="display: block; margin-bottom: 5px; clear:both;max-width: 100%;" width="358"/></p>
<p>The question many homebuyers are facing this year is<em>, “Why is it so hard to find a house?”</em> We’re in the ultimate <a href="https://www.simplifyingthemarket.com/2021/03/29/what-it-means-to-be-in-a-sellers-market/?a=712984-fa409495d5d70154d03a25e81e9540e2">sellers’ market</a>, which means real estate is ultra-competitive for buyers right now. The <em>National Association of Realtors</em> (NAR) notes homes are getting an average of <a href="https://cdn.nar.realtor/sites/default/files/documents/2021-03-realtors-confidence-index-04-22-2021.pdf">4.8 offers</a> per sale, and that number keeps rising. Why? It’s because there are so few houses for sale.<span id="more-44276"></span></p>
<p>Low inventory in the housing market isn’t new, but it’s becoming more challenging to navigate. Danielle Hale, <em>Chief Economist at realtor.com</em>, <a href="https://www.realtor.com/research/weekly-housing-trends-view-data-week-apr-17-2021/">explains</a>:</p>
<blockquote>
<p>“<strong><em>The housing market is still relatively under supplied</em></strong><em>, and buyers can’t buy what’s not for sale. Relative to what we saw in 2017 to 2019, <strong>March 2021 was still roughly 117,000 new listings lower, adding to the pre-existing early-year gap of more than 200,000 fresh listings that would typically have come to market in January or February</strong>. Despite this week’s gain from a year ago, we’re 19 percent below the new seller activity that we saw in the same week in 2019.</em>”</p>
</blockquote>
<p>While many homeowners paused their plans to sell during the height of the pandemic, this isn’t the main cause of today’s huge gap between supply and demand. Sam Khater, <em>Vice President and Chief Economist </em>at <em>Freddie Mac, Economic Housing and Research Division,</em> <a href="http://www.freddiemac.com/perspectives/sam_khater/20210415_single_family_shortage.page">shares</a>:</p>
<blockquote>
<p>“<strong><em>The main driver of the housing shortfall has been the long-term decline in the construction of single-family homes</em></strong><em> . . . That decline has resulted in the decrease in supply of entry-level single-family homes or, ’starter homes</em>.’”</p>
</blockquote>
<p>When you consider the number of homes built in the U.S. <a href="https://twitter.com/RobertFrickNFCU/status/1383045732068888579">by decade</a>, the serious lack of new construction is clear (<em>See graph below</em>):<a href="https://files.simplifyingthemarket.com/wp-content/uploads/2021/04/27160510/20210428-MEM-Eng-1.png"><img alt="Patience Is the Key to Buying a Home This Year | Simplifying The Market" class="aligncenter wp-image-44278" decoding="async" height="488" loading="lazy" sizes="auto, (max-width: 650px) 100vw, 650px" src="https://files.simplifyingthemarket.com/wp-content/uploads/2021/04/27160510/20210428-MEM-Eng-1.png" srcset="https://files.simplifyingthemarket.com/wp-content/uploads/2021/04/27160510/20210428-MEM-Eng-1.png 1000w, https://files.simplifyingthemarket.com/wp-content/uploads/2021/04/27160510/20210428-MEM-Eng-1-400×300.png 400w" width="650"/></a>The number of newly built homes is disproportionately lower than the rate of household formation, which, according to the <a href="https://www.census.gov/data/tables/time-series/demo/families/households.html"><em>U.S. Census Bureau</em></a>, has continued to increase. Khater also <a href="http://www.freddiemac.com/perspectives/sam_khater/20210415_single_family_shortage.page">explains</a>:</p>
<blockquote>
<p><em>“<strong>Even before the COVID-19 pandemic and current recession, the housing market was facing a substantial supply shortage</strong> and that deficit has grown. In 2018, we estimated that there was a housing supply shortage of approximately 2.5 million units, meaning that the U.S. economy was about 2.5 million units below what was needed to match long-term demand. Using the same methodology, <strong>we estimate that the housing shortage increased to 3.8 million units by the end of 2020</strong>. A continued increase in a housing shortage is extremely unusual; typically in a recession, housing demand declines and supply rises, causing inventory to rise above the long-term trend.”</em></p>
</blockquote>
<p>To catch up to current demand, <a href="http://www.freddiemac.com/perspectives/sam_khater/20210415_single_family_shortage.page"><em>Freddie Mac</em></a> estimates we need to build almost four million homes. The good news is builders are working hard to get us there. The <em>U.S. Census Bureau </em>also <a href="https://www.census.gov/construction/nrc/pdf/newresconst.pdf">states</a>:</p>
<blockquote>
<p>“<em>Privately-owned housing units authorized by building permits in March were at a seasonally adjusted annual rate of 1,766,000. This is 2.7 </em><em>percent </em><em>(±1.7 percent) </em><em>above the revised February rate of 1,720,000</em> . . . <em>Privately-owned housing starts in March were at a seasonally adjusted annual rate of 1,739,000. This is 19.</em><em>4 percent </em><em>(±13.7 percent) above the revised February estimate of 1,457,000</em>. . . .”</p>
</blockquote>
<p>What does this mean? Lawrence Yun, <em>Chief Economist</em> at NAR, <a href="https://www.linkedin.com/posts/lawrence-yun-592a76146_good-news-on-a-potential-turn-for-the-better-activity-6788821150567829506-nWur/">clarifies</a>:</p>
<blockquote>
<p>“<strong><em>The March figure of 1.74 million housing starts is the highest in 14 years</em></strong><em>. Both single-family units and multifamily units ramped up. After 13 straight years of underproduction – the chief cause for today’s inventory shortage – <strong>this construction boom needs to last for at least three years to make up for the part shortfall</strong>. As trade-up buyers purchase newly constructed homes, their <strong>prior homes will show up in MLSs, and hence, more choices for consumers</strong>. Housing starts to housing completion could be 4 to 8 months,<strong> so be patient with the improvement to inventory</strong>. In the meantime, construction workers deserve cheers.</em>”</p>
</blockquote>
<h3><strong>Bottom Line</strong></h3>
<p>If you’re planning to buy this year, the key to success will be patience, given today’s low inventory environment. Let’s connect today to talk more about what’s happening in our area.</p>
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