The first half of 2021 presented an exciting six months in real estate. The theme, as we referenced monthly, was record-low interest rates, high buyer demand, and booming home prices as a result. In recent weeks, however, the market has cooled a bit. Homes are still selling quickly – and many over list price – but the number of buyers and offers overall are not as plentiful as we saw previously in the spring.
According to Michael Fratantoni, Chief Economist at the Mortgage Bankers Association, mortgage applications are down 17% annually nationwide, causing a slight slowdown in market activity.
While the real estate market usually cools during the summer, is there a chance this activity could be more than seasonal? Let’s take a look at some of the factors involved.
1. Buyers Playing Wait-and-See
A lot of buyers have taken a seat on the sidelines, being discouraged after multiple unsuccessful attempts to purchase a home. This is one of the reasons why many markets across the country are beginning to see fewer offers on homes, and less buyer competition overall. Fortunately, when our clients leverage 8z’s Cash Buyer program, 84% of the offers are accepted.
2. Record-breaking Home Prices
Similarly, the rising price of homes has reached a level that is now preventing some first-time buyers from entering the market, adding to the slowdown as well.
3. Interest Rate Rebound
Additionally, interest rates have begun to slowly tick back up. The average rate on a fixed 30-year conventional mortgage recently rose to 3.20% from 3.18% - at the beginning of the year, that rate was around 2.85%. This has caused a 8% weekly drop in applications to refinance as well, with year-over-year refinancing applications down 15%. However, the odds of rates taking a drastic leap are slim. A recent report from Freddie Mac states that “While higher mortgage rates will help slow the pace of home sales and moderate house price growth, we expect overall housing market activity will remain robust.”
4. Inventory Making a Comeback
Another major factor that will determine overall market activity is inventory. While available homes for sale have been extremely low, it appears that may be changing. George Ratiu, Senior Economist at realtor.com, states that “We have seen more new listings this year compared with 2020 in 11 of the last 13 weeks. The influx of new sellers over the last couple of months has been especially helpful in slowing price gains.” Further evidence from the National Association of Home Builders shows that 652,000 single-family homes are now under construction, 28% higher than last year.
So, is the “summer slowdown” truly a seasonal trend? When we look at all of the factors above, it appears the second half of the year most likely won’t feature a market quite as sizzling hot as the first six months of 2021. But, large-scale forces look to remain supportive of a strong market. As long as interest rates remain low and inventory levels continue to slowly climb, we should see price appreciation continue, but at more sustainable levels.
Buyer activity may have slowed down temporarily, but the market is still hot, and sellers are still looking to make top dollar on the sale of their home. Two recent 8z clients, Dan and Pam, found a home that they really loved, but the seller would not entertain any contingency offers. This meant that they'd have to first sell their home, and hope that their offer would be accepted. When their agent told them about 8z Bridge, they were relieved knowing that they could buy their new home first - with cash, and then sell their current home after moving in. Our Bridge program is the perfect solution in this market, and may even become a more standard process for buying a home.
