The booming housing market has been one of the most fascinating macroeconomic stories of the pandemic. Home sales plummeted in spring 2020 after Covid shutdown orders but they began climbing again later that summer, and by the end of the year, homes were selling well above pre-pandemic levels, according to data from the National Association of Realtors.
That trend continued into 2021 and, as of October, sales figures and increases in home values have blown out even the most ambitious predictions for the year. That month, the average value of a home was almost $313,000, according to Zillow's most recent market report — an increase of $4,000 from the month before and a 19% increase from October 2020.
"We're still going to see a couple more months of record-breaking appreciation" into 2022, says says Zillow economist Nicole Bachaud. "We'll likely get very close to, if not jump over, that 20% mark for annual appreciation before [prices] start to pull back down."
A big reason for the jumps in home appreciation month after month has been the ongoing lack of inventory. There simply aren't enough houses for all the people who want to buy right now, Bachaud says. The limited number of options has created fierce competition and inevitably led to bidding wars and desperation, particularly among first-time buyers.
"They go out in the market and they put 10 different bids down, and they're outbid 10 different times," Bachaud says. "There's not enough supply to meet demand."
Yet despite the continued low supply, sales continue to outpace expectations. Zillow predicts more than 6.1 million homes will have sold by the end of this year, an increase of 80,000 homes from its earlier estimates.
Agents on the ground think those numbers are likely much higher. "I did my November market update" just before Thanksgiving, says Robert Erickson, a real estate agent in Los Angeles. "In 2020, we sold about 6.5 million homes in America, and in 2021 we will sell 7 million, and next year we're slated to sell 7.4 million in America. So it's definitely not slumbered."
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None of this is great news for people who, almost two years into the pandemic, are ready to buy a house; the market forces are such that some experts are suggesting would-be buyers wait until home appreciation levels out some, or until this boom cycle busts.
Bachaud doesn't think that slowdown is going to come any time soon. "A lot of people want to buy a home, but nobody can afford to do it at this time," she says. "And things are going to become more unaffordable as time goes on."
Erickson agrees that the current boom is unlike past cycles when the housing market was on fire and then crashed suddenly. "Is it a bust, or is it just robust?" Erickson says. He says it's the latter. "People haven't been using the equity in their homes like an ATM like they did in 2007, 2008, and 2009, when we had a lot of foreclosures and short sales because people owed more than their homes were worth when the market changed. That's that's what's happening now."
Instead, the opposite has happened, Erickson says. Homeowners are sitting on a lot of equity and most haven't tapped into it at all, so there's no real urgency to sell unless they want to cash in. Many see now as a great opportunity to cash in big.
"A lot of millennials are kind of hoping for a 2008 repeat," Bachaud says. "Home prices just came crashing down, and they're kind of waiting for that now. They're like, 'I want to buy a home, but it's too expensive. When is the market gonna crash so I can afford this?'"
Unfortunately for them, the financial bona fides of current homeowners are such that first-time buyers likely won't get that repeat. "We're going to continue to see affordability being the main challenge in 2022," Bachaud says. "And young people are just really going to have a really difficult time trying to compete in that kind of a market."
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There are still some things eager buyers can do to improve their chances of making their home bids stand out from the competition, experts say.
- Get prequalified by your lender. There's a big difference between being preapproved and being prequalified for a mortgage, experts say. Prequalification is a much more robust look into your personal finances so the lender can make sure you're good for the money. It also means that sellers will have to do less legwork if your offer is accepted.
- Have your lender call the listing agent. The most competitive buyers will not only get prequalified but will also have their lenders call the listing agent, experts say. "I always like the lender to call me and tell me about the client when they're making an offer," Jeffrey Knipe, a real estate agent and founder of Knipe Realty in Portland, Oregon, recently told Grow. "The lender can really help make your offer that much better."
- Write the seller a letter. Always send the seller a personal note, experts say. It won't make the difference if someone has outbid you on price but in particularly tight negotiations, an appeal to the seller's emotions can sometimes do the trick.
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