Bidding wars, no contingencies and frustrated buyers...the housing market is heating up! Existing home sales have jumped to their highest level since early 2007 and new home sale activity has been equally as brisk. Additionally, nearly a decade after the housing market peaked, foreclosure filings, which includes default notices, scheduled auctions and bank repossessions, dropped to the lowest level since November 2005, according to ATTOM Data Solutions.
When fresh housing data are released this week, we are likely to see a continuation of a hot real estate market, though one with a notable problem: there are not enough homes for sale. Housing inventory has fallen year-over-year for 20 straight months, which is pushing up prices. The median list price nationally is about $250,000, a steep nine percent higher than one year ago. There are a few factors that have created the situation. The most important one is that early in the housing market recovery, private equity firms saw a huge opportunity in real estate. They raised money, then bought up as many distressed properties as they could, fixed them up and rented them out.
You might think that with a rise in prices that these institutional investors would simply flip the properties and be happy with the profits. However, the rents that they were collecting amounted to a better stream of income than they could find in the bond market, so they just held on. And because the vast majority of the properties were at the lower end, there is now a shortage of homes for first time buyers in many markets.
Adding to the housing shortage is the fact that many baby boomers are choosing to renovate their homes and to stay put, rather than downsize. The trend is now being described as “aging in place”. Then there are some homeowners, who would like to trade-up their starter homes, but are reluctant to give up their ultra low mortgage rates.
The combination of these factors has translated into the lowest number of homes for sale since 1995, which has sidelined many prospective homebuyers, who have become frustrated with the process. Still, the National Association of Realtors reported that interest in buying a home is the highest it has been since the Great Recession, because households are feeling more confident about their financial situation; job growth is strong in most of the country; and the stock market has seen record gains in recent months. Additionally, mortgage rates still remain at historically low levels and the underwriting process is loosening up.