Good morning fellow Ohioans! About a year ago, we released our monthly newsletter which talked a lot about a new virus called COVID-19 (view the newsletter here!). As much as we tried to accurately assess the situation, it's very interesting to see how much we got wrong. For one thing, we anticipated the economy opening back up again soon, and although that happened to some extent last summer, a little over a year later, it doesn't seem like too much has changed. In addition, we predicted a mass influx of new listings thus ending the longtime seller's market, another prediction yet to come to fruition. And that's what we're going to discuss this month.
It's been nearly 10 years since we saw any significant increase in home inventory (AKA the number of homes for sale). During the past year, inventory was near record lows as sellers pulled their homes from the market due to COVID-19. Couple that with record-low interest rates, and you have a perfect storm for low supply and high demand - hence a seller's market.
In recent months, however, there has been an uptick in the number of new listings. In March 2021, we saw a 50% increase in new listings compared to February, and a slight 0.3% increase over March 2020. This uptick in one of the most prolific listing months of the year is a sign of normalization. But despite this, buyers are gobbling up homes just as fast as they hit the market leaving us with 3% fewer homes for sale on March 31 than what we started with on March 1.
There are three key reasons there are so many buyers right now, which we'll briefly outline below.
Low Interest Rates: Interest rates have been trending down for years, which makes homes much more affordable. The monthly payment, for example, on a $300,000 home is about $400 less than what it was in 2006 simply due to a change in interest rates. While rates started moving back up in December, they're now trending down again towards 2.5% for a 30-year fixed mortgage.
Stimulus Checks: Very little data is available regarding how stimulus checks are being spent, and while many Americans used their checks to put food on the table and pay the bills, it's safe to assume some people are using these funds for a down payment on their first home.
Geoarbitrage: Made famous by Tim Ferris in The Four Hour Work Week, geoarbitrage simply refers to moving to places with a lower cost of living. While Ohio isn't necessarily one of the digital nomad hotspots Tim had in mind, it is the 6th least expensive state in the country, and all in all about 30% less expensive than California (the most expensive state). With more people than ever working from home, Ohio's cost of living is starting to look extremely appealing.
In other news, it was recently announced that average real estate commissions remained below 5% for the second year in a row. RealTrends reported last month that the average 2020 commission was 4.94%, slightly below 2019's average of 4.96%, and a far cry below the 6% norm. Here at CommonCents, we're doing our part to contribute to this movement in our goal to lower transaction costs as much as possible. For more information, contact us a info@commoncents.homes or visit our website http://commoncents.homes/.