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Hopes of housing shortage relief diminish as new listings drop

Market Trend

Hopes of housing shortage relief diminish as new listings drop

The real estate market has continued to surge throughout the pandemic, but is now booming even more as COVID fears reside but low interest rates remain. But hopes of a wave of new housing inventory has been dashed, for now.

According to the latest Mortgage Monitor report from Black Knight: thus far in 2021, new listing volumes have failed to make up for the shortfall of 2020 and were down 16 percent and 21 percent year over year in January and February, respectively. The 125,000 fewer listings over the first two months of 2021 compared to 2020 have pushed for-sale inventory 40 percent below last year’s level and trending in the wrong direction.

And, of course, this is putting upward pressure on home prices.

“Our repeat sales-based Black Knight Home Price Index shows February’s annual price appreciation at 11.6 percent, the fastest growth rate in more than 15 years,” Ben Graboske, Black Knight data and analytics president, said in a statement. “Likewise, the daily home sales data tracked by our collateral analytics group found a nearly 16 percent year-over-year increase in the median sales price in February. Multiple years of constrained housing inventory and historically low interest rates have helped fuel this fire to the point where nearly 75 percent of the 100 largest U.S. markets have seen annual home price growth of 10 percent or higher.”

“What’s more, collateral analytics’ Market Conditions Report shows the housing markets in 75 percent of ZIP codes rated either ‘Strong’ or ‘Hot’ based on underlying market metrics,” Graboske said. “Only 7 percent are characterized as ‘Normal.’”

These hot housing markets are beginning to raise concerns about affordability as home prices rise and rates are now starting to tick up.

“It now takes 20 percent of the median income to make the monthly payment on the purchase of an average-priced home, back up to the five-year average after several years of low interest rates mitigating the impact of rising prices on affordability,” Graboske said. “Housing is now the least affordable it’s been – factoring in interest rates, home prices and income – since mid-2019.”

And there seems to be no relief in sight. With interest rates rising, there was hope that sellers that were hesitant to list during COVID would begin to put their homes on the market in 2021. Now, however, housing inventory is actually trending down.

“Rather than an influx of homes on the market, we’re now 125,000 fewer new listings in the hole compared to the first two months of 2020 and trending in the wrong direction,” Graboske said. “With higher interest rates and a continuing shortage of inventory, it will be important to keep a careful eye on both home prices and affordability metrics in the coming months.”