The extended housing boom in 2021

The extended housing boom in 2021
by Brad Cartier, posted in Newsletter

Affordability is becoming more challenging as housing prices continue to rise. And, according to Redfin, 2021 won’t see any slowdown in housing prices. According to their report, homebuyer demand is up 60% from last year, and there are currently 13% fewer homes being listed. This supply squeeze will drive up prices well into 2021.

Days on market at historical lows as of 2021 - Redfin

Source: Redfin

According to Redfin chief economist Daryl Fairweather:

“There will continue to be a lack of new listings in early 2021…But rock-bottom mortgage rates will have buyers eager to purchase the few listings that do hit the market. So I expect bidding wars, fast sales and double-digit price growth to continue. We are at a point in the pandemic where would-be sellers are expecting to be vaccinated in the next 6 months, so they may be waiting for that before selling. Once many more people are vaccinated for the coronavirus and more homeowners start to feel comfortable listing their homes for sale, the current deadlock of housing supply should start to loosen.”

Historic shortage of homes for sale as of 2021 - Redfin

Source: Redfin

On the political front, President Biden’s stimulus efforts may actually hurt affordability. According to Kelsey Ramírez of HousingWire, an industry group has submitted a letter to Congress outlining how the stimulus package could hurt, rather than help, the rental market and put a bigger strain on affordability by not addressing the some $60 billion in lost rent.

Sarah Garland of CBRE noted recently “The problem is really bad and it’s growing…And there’s no unified approach on how to address it all, either. There are lots of successful programs out there but I think we, as a group, need to come together and figure out how we’re going to tackle this growing shortage.”

Nicolas Rapp of Fortune (subscription required) also reports that home prices are rising faster than wages in 62% of markets across the U.S.

Home prices are rising faster than wages - Fortune

Source: Fortune

It seems as though we may be in for an extended housing boom. Couple this with Joshua Pollard’s Forbes article eloquently titled, The Housing Market Just Began A New 10-Year Upward Move.

Overvalued markets

Can’t have a discussion about a rising housing market without including the bubble crowd. According to Jacob Passy of MarketWatch (subscription required), data shows that homes are overvalued by 5.5% nationally, and that “25% of metropolitan statistical areas (meaning major cities) around the U.S. are more than 10% overvalued.” The most overvalued market in the U.S. was Las Vegas, according to the same data.

Michael Braga of USA TODAY reports on the issue, noting that “Talk of a housing bubble is now common among analysts – including those at Swiss banking giant UBS, who back up their claims with charts showing how home prices are outstripping both wages and rents. While home prices have appreciated more than 60% since November 2012, incomes have only appreciated by 20% and rents by 30% over the same time period.”

As I have argued elsewhere, Braga notes that this time is different than in 2008, and that housing supply and demand is leading this boom rather than poor credit policies that led to the previous bubble. And, according to Braga, the rental market is responding efficiently to economic fundamentals:

“Meanwhile, the segment of the real estate market that seems to be working most efficiently at the moment is the rental market. As people leave densely populated cities to escape COVID-19 and congestion, rents are dropping.”

Jerusalem Demsas of Vox explains the effect of the housing boom on overvalued markets, and how homebuyer demand has shifted. “Long-running preferences for more space intensified as Covid-19 forced people to spend more time at home. It also reduced the value of urban amenities when restaurants, indoor gatherings with friends who live nearby, cultural exhibits, and more are unavailable. These simultaneous pressures have seen people moving to suburban environments, opting for yards and extra space to accommodate simultaneous work and school.”

STR update

No surprises here, Inman (subscription required) reported this week that the 2021 Super Bowl saw only a 35% increase in demand for short-term rentals, compared to 50% in 2020 (Miami), and 263% in 2019 (Atlanta).

But, even if STRs were hurting for sports fans on Sunday, the general industry is seeing a bit of a renaissance, particularly when looking at domestic travel.

Pam Knudsen of TravelDailyNews reports that 2021 will “see short-term hosts and marketplaces work more closely with local communities to forge positive relationships and become a more open partner in bringing tourism back.”

Further, Vicky Karantzavelou of the same outlet reports on data showing a 25% increase in guests travelling within the same country compared to the same time last year.

“Beyond the challenges of navigating international travel restrictions, concern about COVID-19 and increased interest in feeling comfortable and safe is prompting many travellers to choose destinations that are not just domestic but much closer to home.”

Karantzavelou further reports that Airbnb’s Travel Report 2021 found that 56% of travellers prefer a domestic or local destination, compared to 21% who want to visit internationally. One in five Americans also reportedly say they want their destination to be within driving distance of their homes.

Jade Tinsley of Transparent is quoted as noting that “Coronavirus has warped demand trends within the vacation rental industry, with domestic travel a persisting preference worldwide. Until airline demand experiences some recovery, trends are likely to continue, with debilitated international demand and volatile local demand subject to restrictions.”

This is why travel industry groups are so angry at recent suggestions of COVID-19 testing for domestic flights. Erik Bascome of Staten Island Live reports on the CDC decision to consider requiring negative COVID-19 tests for all domestic flight passengers before take-off. “In the days since floating the idea, travel associations and airline operators have quickly voiced their disapproval, noting that air travel has not been found to be a significant spreader of the coronavirus and that the requirement would force the country to greatly enhance its testing capacity.”

Finally, vacation rental home demand generally has surged, according to Tim Glaze of HousingWire. According to recent data, demand for vacation homes rose 84% year-over-year.