The fall season is in full swing with football games, autumn leaves, and Sam Adams' Octoberfest, but even as the weather cools, the real estate market is still on fire. Despite an influx of new listings in Q3 - 12,291 to be exact - home sales remain high with the average sale price at $301,572 (9% higher than last year). The influx of new listings, however, was refreshing for those looking to buy and a much needed inventory surge. In fact, last quarter saw a 13% increase in new listings over Q3 of 2020, the most since 2006. But unlike 2006, there's reason for optimism in the real estate world.
For those who remember, 2006 was an interesting time in real estate. The market seemed to be on a perpetual upswing, though, at its core, lacked all substance. Now is different for a number of reasons, most notably record-low home inventory. In short, the home prices are so high right now due to supply and demand. Supply remains low due to three main factors:
Supply shortages and supply chain issues stemming from COVID-19.
A lack of skilled tradespersons (plumbers, electricians, carpenters, etc)
A major decrease in new home construction after the last recession.
According to the US Census Bureau, new construction peaked at 1,979 units in 2006 and bottomed out at 584 in 2011. Last year there were 1,286 completed units putting us slightly above 1993 levels.
Demand, on the other hand, is up primarily because of record-low interest rates, which have remained low for over a decade. However, most economists say rates can't remain low forever, especially as inflation may be on the rise.
According to the Federal Reserve Bank of Cleveland, "The Federal Reserve seeks to control inflation by influencing interest rates. When inflation is too high, the Federal Reserve typically raises interest rates to slow the economy and bring inflation down. When inflation is too low, the Federal Reserve typically lowers interest rates to stimulate the economy and move inflation higher."
One of the main debates going on right now is what type of inflation we're currently experiencing - is it short-term inflation due to supply-chain shortages or long-term inflation due to perpetually low interest rates, stimulus spending, and a record-high stock market? I tend to think it's a little bit of both but only time will tell. In the meantime, enjoy this market while you can with the understanding that perhaps a slight cooldown might be what we need to bring back the equilibrium - after all, most sellers also have a home to buy.
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