While the pandemic all but froze U.S. homebuying activity a year ago, the market rebounded in the summer and has been red-hot for months. Would-be buyers — motivated by historically low interest rates and a desire for more personal space for remote work and schooling — have flooded the market, gobbling up inventory.
That momentum led to a historic shortage of homes for sale. Now, there's evidence that supply is increasing and the housing market's hot streak might be (very slightly) cooling.
Data from Zillow shows that nationally, the number of homes for sale has been steadily decreasing since July. But there are a handful of metro areas where housing inventory increased between February and March.
According to Zillow, in 18 of the nearly 100 U.S. metros the website publishes data for, housing inventory ticked up by 2% or more between February and March. San Jose and Seattle led the pack: The number of homes on the market there increased by more than 10%.
Signs of an increase in housing inventory will be welcome relief to real estate agents, who can't list new houses for sale quickly enough. But it won't be enough to turn the tide to favor buyers, says Zillow economist Treh Manhertz.
"There are underlying forces that are going to keep the market pretty hot," Manhertz says.
For starters, interest rates are at historic lows, and millennials, who are now at prime homebuying age, have pushed demand to levels not seen in more than a decade. That, in turn, has pushed home values way up. "We've just started seeing signs that [inventory] ticked up, but it's still at historic lows," Manhertz says. And "price growth is still accelerating."
That price growth is reflected in Zillow's data: Nationwide, home prices increased 1.2% from February to March, the largest such monthly increase since Zillow started tracking these numbers more than 15 years ago.
It was only a matter of time before this hot real estate market drew comparisons to the housing bubble of the mid-2000s, which also saw low interest rates drive many people into the market.
However, apart from increased demand driving up prices, there's very little else connecting the two time periods, says Bankrate analyst Jeff Ostrowski.
"It's kind of scary [to see] home prices go up this much, just because it brings back memories of the last crash, but there are many differences," Ostrowski says. For example, "15 years ago, the market was just crazy in terms of the availability of credit; pretty much anybody could get a loan for any amount. And that's not the case at all now."
In today's market, borrowers have to be ready to show proof of income, a great credit score, and a solid down payment if they want to be competitive, Ostrowski says.
Video by Richard Washington
These bona fides are reflected in the data: The median credit score of first-time homebuyers in the fourth quarter of 2020 was about 740 out of a possible 850, according to the Federal Reserve Bank of New York. Credit-scoring company FICO considers 740-799 to be a "very good" score.
"One of the most reassuring pieces to me has been the credit profile of buyers," says Manhertz. "These buyers' credit scores tend to be higher, and these aren't super risky loans, either."
That likely means that prices will continue to remain high for the rest of the year, even as more Americans get vaccinated and more housing inventory comes online, Manhertz says. While prices may stabilize, he believes they will level off at a high, so prospective buyers should be fully prepared to put their best offers forward if they jump into the market this year.
While the fundamentals of homebuying, like having good credit and a solid down payment, continue to be key in this ultracompetitive market, there are a few tricks that can help your bid float to the top of the pile, real estate professionals tell Grow.
- Get a preapproval letter from your lender. Before you even start looking at houses in a competitive market, get a preapproval letter from your lender that you can whip out if you want to move on a property, said Debra Hall, a real estate agent in Northern Virginia. "A preapproval letter is when you have reached out to a lender," Hall said. "They've checked your credit. They've verified your employment. They've looked at your bank accounts, and they deem you truly qualified to buy a house." Putting in that effort up front can save valuable time, and give you an advantage over other offers.
- Don't forgo the home inspection. The tight housing market has driven some anxious buyers to skip home inspections in order to seal the deal, but that's a very risky move, said Sue Riley, a real estate agent in Northern New Jersey. "You never want to forgo an inspection. Ever," Riley said. "There's a lot of hidden things that can come up, and you don't want to be on the losing end of that."
- Write a note. When you send a personalized letter to the seller introducing yourself, it can create an emotional connection between the two parties, said Leigh Marcus, a real estate agent in Chicago. "When a buyer writes the letter — the kind where the sellers can see who they were when they were buying — that resonates a lot with them," Marcus said. That personal touch could help you outpace the competition.
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