2021 Home Prices

After months of competition for homes that drove prices to record highs, many buyers took a break last month. The National Association of Realtors (NAR) reports existing home sales declined 2% in August from July and were 1.5% lower than in August 2020.

Even so, sales remain higher than before the pandemic. So do prices. The median home sale price in August was $356,700, up 14.9% from August 2020. NAR says prices were up in every region of the country and caused many would-be buyers to pause their search.

"Sales slipped a bit in August as prices rose nationwide," said Lawrence Yun, NAR's chief economist. "Although there was a decline in home purchases, potential buyers are out and about searching, but much more measured about their financial limits, and simply waiting for more inventory."

Inventory has been a major impediment to the housing market over the last several years. People are remaining in their homes longer than in years past and builders have slowed construction activity in the face of rising costs.

According to NAR, the total housing inventory at the end of August was just 1.29 million units, down 1.5% from July's supply and down 13.4% from one year ago. Unsold inventory is at a 2.6-month supply at the current sales pace, unchanged from July but down from three months in August 2020.

Yun says record-high prices make for an unbalanced housing market but that price inflation would slow considerably if there were more homes for sale. But unless there is a steep decline in demand or homebuilders get busy, that’s unlikely to happen in the short run.

Not as much demand for second homes

In a separate report, real estate broker Redfin said demand for second homes fell sharply in August, declining nearly 20% from August 2020. The company attributes the drop to last summer’s surge in second home purchases.

"The pandemic isn't over, but the desire to escape isn't as intense as it was before,” said Taylor Marr, Redfin's lead economist. "People are increasingly returning to life as normal, with kids going back to school and cities coming to life again. The housing market as a whole is still booming, just not as strongly as it was in the second half of 2020.”

Marr says competition, migration, and home-sales growth have all slowed in the last 12 months.

The rapid increase in home prices leveled a bit last month, but rents were much higher than in August 2020.

Realtor.com reports the cost of renting a home hit double-digit growth for the first time in two years in August, and it grew three times faster than in March 2020. Rents grew by double-digits in more than half the nation’s 50 largest housing markets, with Tampa leading the way with a 30.6% year-over-year increase.

"Put simply, August trends suggest rents are making up for lost time,” said Realtor.com chief economist Danielle Hale. 

Rents flatlined early in the pandemic

Hale notes that rents remained low during some of the worst months of the pandemic. For example, rents grew less than 2% from September 2020 to March 2021. One factor was a migration from urban apartments to suburban single-family homes.

"Now we've reached a stage in the COVID-19 recovery where people are ready to move, and we're seeing urgency to find new living spaces immediately,” Hale said. “A lot of this demand can be attributed to vaccines opening up offices and city-life, young adults feeling more confident to strike out on their own, and homebuyers needing to take a break from the red hot housing market.”

In August, the median rent was a little over $1,600 a month. With many people moving back to urban areas, Hale predicts renters could see even more increases over the next few months.

Home prices have slowed

That could make purchasing a home a little more attractive. Zillow’s latest market report shows home prices leveled off in August, largely due to an increase in homes on the market and some price reductions.

"The strong recovery of inventory and initial lift off the gas pedal for home value appreciation is indicative of balance returning to the market," said Nicole Bachaud, economic data analyst at Zillow. "But, the major demand drivers that have pushed the market to extremes this year are still present — we're moving from a white-hot midsummer to somewhere closer to red hot as we head into the fall."

According to the Zillow report, U.S. home values are up a record-breaking 17.7% from a year ago. That put the typical U.S. home value in August at $303,288. The housing markets that saw the fastest growth are Austin, where the average home increased in value by 44.8%, and Phoenix, where home values grew 31.8%.

"Another month of rising for-sale inventory gives shoppers more options to choose from and less competition, which should help reduce bidding wars and further moderate rampant price hikes," Bachaud said. "A slightly less frenzied market means buyers have a much better chance to land the home they're bidding on, and may even see a price drop on their saved listings, but keep in mind the market is still much hotter than normal for this time of year."

At the end of an extremely active spring home-buying season, the median price for a home posted an 18.6% increase, according to the S&P CoreLogic Case-Shiller Index.

The June increase came on the heels of a 16.8% rise in home prices in May, further adding to affordability challenges facing buyers. 

Phoenix, San Diego, and Seattle reported the highest year-over-year gains among the 20 cities in the index in June. The median price in Phoenix was up nearly 30% over June 2020, while prices in San Diego were 27% higher. Seattle wasn’t far behind, with home prices rising 25%.

"June 2021 is the third consecutive month in which the growth rate of housing prices set a record," said Craig Lazzara, managing director at S&P DJI.

Lazzara says it was also the 13th straight month of accelerating home prices, with many of those months seeing double-digit price gains on a year-over-year basis.

 "The last several months have been extraordinary not only in the level of price gains but in the consistency of gains across the country,” he said. “Home prices in 19 of our 20 cities now stand at all-time highs, as do the National Composite and both the 10- and 20-City indices.”

Supply and demand

A major factor driving those prices higher is an imbalance in supply and demand. Americans have been on the move since the COVID-19 pandemic began, with many heading for smaller cities because they could work remotely. At the same time, the number of available homes for sale continued to decline over the last 12 months.

The National Association of Realtors (NAR) reports that inventory levels improved in July, along with existing home sales. But there was no slowdown in home prices.

NAR reported that the median existing home price for all housing types in July was $359,900, up 17.8% from July 2020. Each region saw prices climb, and it was the 113th straight month of year-over-year gains.

"Although we shouldn't expect to see home prices drop in the coming months, there is a chance that they will level off as inventory continues to gradually improve," said Lawrence Yun, NAR’s chief economist.

In the meantime, Yun says some prospective buyers who are priced out of the housing market are increasing the demand for rental homes and thereby pushing up the rental rates.

The median price of a single-family home in the U.S. rose to $357,900 in the second quarter, another record high, according to the National Association of Realtors (NAR). Prices rose in all but one of the 183 measured metros, increasing $66,800 -- or nearly 23% -- over the same period in 2020. 

The rise is contributing to the increasing wealth gap in America. People who own a home saw their net worth rise dramatically over the last year. People who do not own real estate generally stayed the same in terms of wealth while the barrier to becoming a homeowner got bigger.

Lawrence Yun, chief economist at the NAR, is hopeful that things will get better for first-time buyers in the months ahead. 

"Home price gains and the accompanying housing wealth accumulation have been spectacular over the past year, but are unlikely to be repeated in 2022," Yun said. "There are signs of more supply reaching the market and some tapering of demand. The housing market looks to move from 'super-hot' to 'warm' with markedly slower price gains."

Low mortgage rates are key

Any price gains to these already lofty valuations will likely pose challenges for buyers. The one mitigating factor is near record-low mortgage rates. But if rates begin to rise, the market will face a growing affordability issue.

The NAR report shows that 12 U.S. metro areas posted year-over-year home price gains of 30% or more. Eight are in either the South or West. Here are the housing markets where homeowners saw the largest gains:

• Pittsfield, Mass. (46.5%)

• Austin-Round Rock, Texas (45.1%)

• Naples-Immokalee-Marco Island, Fla. (41.9%)

• Boise City-Nampa, Idaho (41%)

• Barnstable, Mass. (37.8%)

• Boulder, Colo. (37.7%)

• Bridgeport-Stamford-Norwalk, Conn. (37.1%)

• Cape Coral-Fort Myers, Fla. (35.6%)

• Tucson, Ariz. (32.6%)

• New York-Jersey City-White Plains, N.Y.-N.J. (32.5%)

• San Francisco-Oakland-Hayward, Calif. (31.9%)

• Punta Gorda, Fla. (30.8%)

Supply and demand imbalance

The rapid rise in home prices in recent years has largely been the result of a supply and demand imbalance. Homebuilders have not produced enough new homes to satisfy the needs of a generation that has moved into household formation in the decade after the Great Recession. Yun says that has contributed to an affordability problem for many young families.

"Housing affordability for first-time buyers is weakening," he said. "Unfortunately, the benefits of historically-low interest rates are overwhelmed by home prices rising too fast, thereby requiring a higher income in order to become a homeowner."

Among first-time buyers, the mortgage payment on a 10% down payment loan jumped to 25% of income, up from 21.2% one year ago. The NAR says a mortgage is affordable if the payment amounts to no more than 25% of the family's income.

Soaring home prices have had the effect of also raising rents. People who can’t afford to purchase a home are now finding it increasingly expensive to rent one.

Data from Apartments.com shows average rent prices are up 7.5% year-over-year, which is three times the normal growth rate. It’s even worse in popular Sunbelt housing markets that have seen a dramatic influx of new residents during the pandemic.

The Washington Post cites the case of apartment residents in Phoenix who were told their rent would go up by $400 a month, a 33% increase. Housing experts say it’s partly because markets like Phoenix are growing in popularity. It’s also because many young people who left the cities at the start of the pandemic are returning.

“I think we’re going to see increases for the next 12 to 18 months,” Robert Pinnegar, president of the National Apartment Association, told the Post. “We’ve never had three generations in the rental housing space, at least not in the numbers we’re seeing now.”

Single-family homes see the biggest increase

The cost of renting a single-family home is leading the surge since there is less of that inventory than apartments. In a report looking at April 2021 data, CoreLogic found a national rent increase of 5.3% year-over-year, up from a 2.4% year-over-year increase in April 2020.

“Single-family rent growth showed a strong rebound in April 2021 with all price tiers back above their pre-pandemic rent growth rate,” said Molly Boesel, principal economist at CoreLogic. “While rent growth slowed last April at the start of the pandemic, the rate of rent growth this April was running above pre-pandemic levels even when compared with 2019 and shows no signs of diminishing.”

That puts renters who would like to buy a home in a difficult situation. Home prices continue to accelerate, meaning they need a bigger down payment. But as rents rise, it makes it more difficult to save money and become homeowners.

Down payments are a challenge

"Without the equity from a previous home sale, first-time homebuyers face more challenges in coming up with a down payment," said Zillow economic data analyst Nicole Bachaud. "In a housing market where prices are rising at record rates, especially when compared to renter incomes, the ever-increasing sum of a 20% down payment can feel out of reach.”

The only bright spot in all of this is the cost of borrowing money. Mortgage rates remain nearly record lows.

First time buyers can take advantage of the Federal Housing Administration’s (FHA) FHA loans, which allow qualifying applicants to put as little as 3% down.

“That lower upfront payment comes with higher monthly payments, but the opportunity to build equity can outweigh those extra costs for many," Bachaud said.

You’ll find more information about FHA loans here.

Mortgage loan company Freddie Mac said in a report released Thursday that the average 30-year fixed-rate mortgage in the U.S. has once again dropped below 3% in 2021. 

The report said 30-year FRM averages are now 2.98%; 5-year Treasury-indexed hybrid adjustable rate mortgage averages are 2.54%; and the rate for a 15-year loan fell to 2.26% from 2.34% last week. 

Last week, the average for the 30-year home loan was 3.02%. A year ago, the rate was 3.07%.

The Labor Department also recently reported that the number of Americans seeking unemployment benefits has fallen to its lowest level since the pandemic began last year. The government said those figures signal that the job market and the economy are bouncing back from their pandemic-related depths. 

Low rates may not last long

Despite low mortgage rates, the market has seen a decline in demand for both refinance and purchase mortgages. 

“Economic growth remains steady and is bolstering more segments of the economy,” said Sam Khater, Freddie Mac’s Chief Economist. “Although low and stable mortgage rates have kept the housing market booming over recent months, a deterioration in affordability and for-sale inventory has led to a market slowdown.”

Experts aren’t confident that low mortgage rates will last much longer. It’s widely believed that mortgage rates will spend the second half of the year inching upwards rather than downward, and many experts recommend that homebuyers take full advantage of the current market.

Mortgage rates moved higher late last week, and housing industry analysts are watching to see what they do this week. Another tick higher could make home-buying even more costly.

Freddie Mac reports the rate on the 30-year fixed-rate mortgage averaged 3.02% at the end of last week, rising from 2.93%.

“Mortgage rates have risen above 3% for the first time in ten weeks,” said Sam Khater, Freddie Mac’s chief economist. “As the economy progresses and inflation remains elevated, we expect that rates will continue to gradually rise in the second half of the year. For those homeowners who have not yet refinanced – and there remain many borrowers who could benefit from doing so – now is the time.”

Current homeowners could realize big savings on their monthly mortgage payments if they can lower their present interest rate by a point or more. However, the upward movement in rates may have a bigger impact on people hoping to buy a home in a red-hot real estate market.

Interest rates’ impact

A 3% mortgage rate is still near historic lows, but home prices are at historic highs. The bigger the mortgage, the more impact even a slight rise in interest rates can have.

For example, on a $400,000 mortgage financed for 30 years, the difference between last week’s rate and this week’s rate is $20. It might not sound like much, but for a buyer on the edge of qualifying for a mortgage, it can make a difference.

More importantly, no one thinks rates will stop at 3.02%. Mortgage rates are tied to the yield on the 10-year Treasury bond, and that rate has been moving higher on inflation concerns. 

Rising rates, along with rising home prices, may already be affecting the housing market. Real estate broker Redfin reports that demand for housing has fallen below 2020 levels for the first time this year.

“Some homebuyers are pausing or abandoning their plans to buy because homes in their area have gotten too expensive," said Redfin Chief Economist Daryl Fairweather. "Even though there are no signs of prices coming down, homebuyers may face a bit less competition and have a bit more selection of homes this summer than they did earlier this year.”

Competition and prices heating up

Intense competition for homes that began during the pandemic has already bid up home prices to record levels. Over the last four weeks, Redfin reports that the median home-sale price increased 23% year-over-year to $361,750, a record high.

Asking prices for newly listed homes were up 13% from the same time a year ago to a median of $362,600, down 0.2% from $363,250 during the four-week period ending June 6. 

It’s not only getting harder to buy a home, it’s getting more difficult -- and expensive -- to rent one.

When the pandemic prompted many apartment dwellers to move out and purchase single-family homes, rents flatlined and landlords offered incentives to keep their units occupied. But a new report from realtor.com shows that rental bargains are now few and far between.

Rents in the nation’s 50 largest housing markets rose in March for the first time in eight months, increasing 1.1% year-over-year. The median rent last month in those same markets was $1,463. It marked a reversal from the preceding months, when rent growth had slowed from 2.2% in July 2020 to just 0.6% in February.

"Although we're still below the 3.2% growth we were seeing before COVID, average rent growth in the nation's largest housing markets saw its first uptick since July 2020, and rents are poised to rise at a quickening pace as recovery continues,” said realtor.com Chief Economist Danielle Hale.

But Hale says there are exceptions. Markets dominated by high-tech employers, along with large metros like Chicago and Los Angeles, are actually seeing rent declines. But she says that could change in the coming months as the red-hot housing market eventually increases competition for rentals.

Home prices still rising by double-digits

Real estate broker Redfin reports that the median home sale price has increased by 18% year-over-year to $344,625, an all-time high. It attributes the rise to a trend that has occurred throughout the pandemic -- families in search of more space.

More buyers and fewer available homes have given sellers the upper hand. The Redfin report shows that asking prices reached an all-time high of $356,175 during the last four weeks. Homes that sold were on the market for an average of just 21 days before going under contract -- the shortest time since 2012.

More telling, 45% of homes sold for more than their list price, an all-time high. This was 18 percentage points higher than the same period a year earlier.

Hope for buyers?

With homebuilders producing fewer new houses, the housing market is dependent on owners of existing homes to list their properties for sale. Now that the pandemic appears to be winding down, real estate marketplace Zillow reports that more people are doing just that.

The inventory of homes for sale went down 1.1% last month, but Zillow notes that the decline was the smallest since July. Zillow takes that as a sign that listings have resumed normal seasonal patterns and predicts that frustrated buyers could find more choices in the months ahead.

However, prices are still going up. Zillow reports that home value appreciation pushed the accelerator closer to the floor in March, rising a record 1.2% month-over-month to $276,717. 

The U.S. housing market continues to pose challenges to buyers as prices continue to rise, along with interest rates. The combination makes monthly payments higher and could put many homes out of reach for the average buyer.

From mid-February to mid-March, the median home price surged 17 percent year-over-year to $330,250, according to real estate broker Redfin. The company says it’s the biggest four-week increase since 2016.

"This time last year, the housing market was shutting down as many cities implemented strict shelter in place orders,” said Redfin Chief Economist Daryl Fairweather. “A year later the pandemic is still with us, but the housing market is red-hot.”

Fairweather says the competition for the declining number of homes for sale is so intense that some buyers are acting irrationally. He says bidding wars have stretched valuations in some markets, and buyers are coming up with extra cash to make the purchase.

Not a bubble

If that sounds like a bubble, Fairweather says it isn’t. He says the demand is real, and there are enough people who can afford to pay the higher prices homes are now bringing.

“Bubbles burst; I don't see that happening,” he said. “The best hope buyers have is that home prices start to grow at a slower pace, but I don't expect prices to fall."

While homes cost more, so do mortgages. The average 30-year fixed-rate mortgage is around 3.25 percent, about a half-point higher than a month ago. On a $250,000 mortgage, the difference in the monthly payment is $61 a month or $732 a year.

Rates are rising because the yield on the Treasury Department’s 10-year bond has risen sharply over the last month over concerns that monetary and fiscal policy will set off a round of inflation.

Get creative

So, what’s a buyer to do? Some are getting creative.

The Wall Street Journal reports that the pandemic and resulting increase in home demand and prices have led to a rise in multi-generational family members chipping in and buying a home together. Around 15 percent of home sales between April and June last year were multigenerational purchases.

According to the National Association of Realtors (NAR), past multi-generational home sales were largely motivated by caring for aging parents. In the last few months, affordability has also been a driver of the trend.

Homebuilders, such as DR Horton, have begun offering multi-generational home plans. These homes usually offer a separate living area under one roof, often with a separate entrance.

People who have shopped for a home in the last year know that home prices are going up. The latest S&P CoreLogic Case-Shiller Indices show just how much.

Closing out 2020, the indices for December show home prices rose 10.4 percent, up from 9.5 percent in November. Broken down into a 10-City Composite -- looking at the key markets -- prices were up 9.8 percent.

Phoenix, Seattle, and San Diego maintained their lead as the hottest real estate markets with Phoenix home prices gaining 14.4 percent. Prices were 13.6 percent higher in Seattle and were up 13 percent in San Diego.

The coronavirus (COVID-19) pandemic did nothing to slow the price rise and the rush by homebound consumers to purchase homes may have contributed to the acceleration in prices.

Double-digit gains

"Home prices finished 2020 with double-digit gains, as the National Composite Index rose by 10.4% compared to year-ago levels," says Craig J. Lazzara, managing director and global head of Index Investment Strategy at S&P DJI. "As COVID-related restrictions began to grip the economy in early 2020, their effect on housing prices was unclear. Price growth decelerated in May and June and then began a steady climb upward, and  December's report continues that acceleration in an emphatic manner.” 

In fact, Lazzara says the 10.4 percent gain in home prices in 2020 marks the sharpest calendar year rise in home prices since 2013. He also says the data supports the belief that the pandemic has encouraged potential buyers to move from urban apartments to suburban homes. 

“This may indicate a secular shift in housing demand, or may simply represent an acceleration of moves that would have taken place over the next several years anyway,” he said. “Future data will be required to address that question.”

Prices kept rising in January

Individual real estate firms have more recent sales data and one broker, Redfin, reports there has been no letup in rising home prices in the new year. It notes much of the price increase is being driven by a shortage of available homes.

"The imbalance between supply and demand reached a new high in January," said Redfin’s chief economist Daryl Fairweather. "Buyers were eager to make offers and make them quickly to take advantage of historically low mortgage rates while they last.”

That’s posing challenges for would-be buyers, who often find that the house they like goes under contract before they can even see it. Even when they put in an offer, Fairweather says they can lose out to other buyers in a bidding war.

Homebuyers and homeowners looking to refinance have been pushed into a whale of a dilemma. While one industry report shows that homeownership is quickly sliding into “unaffordable territory” in much of the U.S., mortgage rates are the most affordable they’ve been in 30 years. 

According to the just-released Primary Mortgage Market Survey by Freddie Mac, the 30-year fixed-rate mortgage is at an average of 2.65 percent, the lowest rate in the survey’s history, which dates back to 1971.

“A new year, a new record low mortgage rate. Despite a full percentage point decline in rates over the past year, housing affordability has decreased because these low rates have been offset by rising home prices,” said Sam Khater, Freddie Mac’s Chief Economist, commenting on the conundrum.

Overall savings are impressive

Freddie Mac’s survey found some interesting comparative tidbits about the shift in mortgage rates. As an example, a 30-year fixed-rate mortgage averaged 2.65 percent with an average 0.7 points for the week ending January 7, 2021, which is down from last week when it averaged 2.67 percent. 

A year ago at this time, the 30-year FRM averaged 3.64 percent. On a $300,000 mortgage, that’s a difference of more than $150 a month -- $1,209/mo. now vs. $1,371/mo. a year ago. But the real savings is in the overall out-of-pocket cost. All told, the total cost of the mortgage on the new rate would be $435,201 vs. $493,448 on last year’s rate.

For those who can swing a larger monthly payment, a 15-year fixed-rate mortgage averaged 2.16 percent with an average 0.6 points, down slightly from last week when it averaged 2.17 percent. A year ago at this time, the 15-year FRM averaged 3.07 percent. On a $300,000 mortgage, that equates to $1,953/mo. now vs. $2,082/mo. a year ago. 

More impressive is the savings on the total cost of a 15-year mortgage, dropping close to $100,000 from a 30-year note at $351,487 now vs. $374,735 with the mortgage rate a year ago.

A 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.75 percent with an average 0.3 points, up a smidge from last week when it averaged 2.71 percent. A year ago at this time, the 5-year ARM averaged 3.30 percent.

You’ll need good credit and 20 percent down

While the Freddie Mac survey sounds like a no-lose proposition, the truth is that to get rates like the ones listed, the survey focuses on conventional, conforming, fully amortizing home purchase loans for borrowers who put 20 percent down and have excellent credit. Freddie Mac also noted that borrowers may still pay closing costs that are not included in the survey.

If a consumer is going to act on these favorable rates, Khater says they better do it now.

“The forces behind the drop in rates have been shifting over the last few months, and rates are poised to rise modestly this year. The combination of rising mortgage rates and increasing home prices will accelerate the decline in affordability and further squeeze potential homebuyers during the spring home sales season,” he said.

Despite record-low mortgage rates, a new industry report shows that homeownership is quickly sliding into “unaffordable territory” in much of the United States.

In its fourth-quarter 2020 report, ATTOM Data Solutions, a property data firm, found that median home prices of single-family homes and condos were less affordable than historical averages in 55 percent of counties in the U.S.

That’s a sharp increase from 43 percent a year ago and 33 percent three years ago. Without falling mortgage rates and rising wages, the company said the number would likely be much higher.

To be considered affordable, a home with a mortgage must fall within a range that requires no more than 28 percent of a homeowner’s income to pay the mortgage, property taxes, and insurance.

That required income was then compared to annualized average weekly wage data from the Bureau of Labor Statistics. The analysis showed that 275 of 499 counties analyzed in the fourth quarter of 2020, or 55 percent, were less affordable than past averages.

Rising home prices

The main reason for the lack of affordability is the relentless increase in home prices. Even with the coronavirus (COVID-19) pandemic, which briefly halted sales, prices continued to rise and demand for homes ran well ahead of homes on the market.

In fact, prices in 2020 have risen faster than wages and wiped out the benefit that buyers would normally realize from declining mortgage rates. The report found major home-ownership expenses consumed 29.6 percent of the average wage across the nation during the fourth quarter of 2020. A year earlier, the figure was 26.4 percent.

The National Association of Realtors reported that the median existing-home price in November was $310,800, up 14.6 percent from November 2019. It said prices were higher in every region of the country. 

"Owning a home in the United States slipped into the unaffordable zone for average workers across the nation in the fourth quarter as the numbers continued a year-long slide in the wrong direction,” said Todd Teta, chief product officer with ATTOM Data Solutions. “The latest housing market data shows the average worker unable to meet the 28 percent affordability guideline used by lenders." 

Conditions look bleak for buyers

Teta says the outlook remains uncertain. For now, he says it’s a seller’s market, and “things are going in the wrong direction for buyers."

There were 499 counties listed in the report, and only 41 percent of them had homeowner costs that aligned with affordability guidelines for the average wage earner. They include Cook County, Ill., Harris County, Tex., and Philadelphia County, Pa.

There were 296 counties with unaffordable major expenses on median-priced homes for average earners. They include Los Angeles County, Calif., Maricopa County, Ariz., and San Diego County, Calif.