CHM Blog

Median price of homes explodes while American Dream needs more inventory to survive

To get some perspective on what is going on in the residential real estate market, look no further than a bit of historical data. In 1940 the median price for a home was just $2,938. In 1980, it was $47,200, and by 2000, it had risen to $119,600. Even adjusted for inflation, the median home price in 1940 would only have been $30,600 in new millennial dollars, according to the U.S. Census Bureau. Fast forward to now, and the median home sale price increased 16% year-over-year to $331,590 – an all-time high, per a report this week from Redfin. You'd think it would slow down interest in buying a home, but it doesn't seem to be stopping buyers from snatching up homes days after they're listed.

According to HousingWire, during a four-week period ending March 21 and covering 400 metros, 58% of homes that went under contract had an accepted offer within the first two weeks on the market. And between March 14 and March 21, 61% of homes sold in that timeframe had been on the market two weeks or less, and 48% had sold in one week or less.

On top of that, nearly 40% of homes sold above their list price – another all-time high – and 15 percentage points higher year-over-year. "The average sale-to-list price ratio, which measures how close homes are selling to their asking prices, increased to 100.2%," says HW.

So what happens after mortgage rates, inventory, and building material costs recover to pre-pandemic levels? HW cites National Association of Home Builders Chairman Chuck Fowke, who noted that supply shortages and high demand have caused lumber prices to jump "about 200%" since April 2020, and the elevated price of lumber is adding approximately $24,000 to the price of a new home.

They also quote Redfin chief economist Daryl Fairweather: "When the pandemic is over, purchasing a home is going to cost much more than ever before, putting homeownership much further out of reach for many Americans. That means a future in which most Americans will not have the opportunity to build wealth through home equity, which will worsen inequality in our society."

But Fairweather notes that while the new administration's hopeful $3 trillion infrastructure plan includes building 1.5 million sustainable homes, there is no guarantee the bill will end up including it, and notes that America needs an audacious goal to increase the housing supply, given the U.S. is short 2.5 million homes. "It may be expensive to build millions of homes, but ignoring the problem would only cause housing to become more unaffordable and worsen housing insecurity."

She cites experts who say the best chance at home prices lowering is the continued rollout of the COVID-19 vaccine, which will permit lumber mills to reopen, material prices to lower, and builders to spend less on new builds.

Source: HW | TBWS

How Rates Move:

Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage Backed Securities (MBS) which are traded in real time, all day in the bond market.  This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events.  When MBS pricing goes up, mortgage rates or pricing generally goes down.  When they fall, mortgage pricing goes up.  Tracking these securities real-time is critical.  For more information about the rate market, contact me directly.  I’m among few mortgage professionals who have access to live trading screens during market hours.

Rates Currently Trending: Neutral

Mortgage rates are trending sideways this morning.  Last week the MBS market improved by +37 bps.  This may've been enough to improve mortgage rates or fees.  We saw slightly elevated volatility through the week.

This Week's Rate Forecast: Higher

Three Things: These are the three areas that have the greatest ability to move rates this week. 1) Jobs, 2) Coronavirus and 3) PMIs

1) Jobs: We get a ton of job and wage-related data this week. The main focus will be Friday's Non-Farm Payrolls, Average Hourly Earnings, and the Unemployment Rate. The stronger the data is, the worse it is for pricing.

2) Coronavirus: In Europe, there's a major resurgence of Covid cases that is being referred to as a "third wave," while here in the US, there is a 16% weekly spike in cases despite increased vaccination rates with 63K new daily cases. The expectation is that trend will increase with Spring Break and could potentially throw a roadblock into reopenings and push the economic surge to later in the year.

3) PMIs: With Durable Goods Orders missing last week, Chicago PMI and the ISM Manufacturing PMIs will get a lot of attention both in terms of orders as well as the internals for prices paid and employment.

This Week's Potential Volatility: High

Rate markets are moving sideways so far today on moderate to low volatility. The likelihood of volatility is greater toward the middle and end of the week with the release of employment and PMI data.

Bottom Line:

If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.

Richard Sardella has been actively managing and providing services in the mortgage industry for over 27 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.

All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.

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