You have likely heard how crazy the housing market has become over the last two years. “Home prices are way up!” “Housing inventory is way down!” “Home interest rates are at a record low!”
That’s all true, but do you know how much home prices have increased since the beginning of the pandemic in March of 2020? Not just in your neighborhood but across the country? And do you know what these stark increases mean for you as a home buyer or seller and the country itself? If not, that’s ok! Allow me to explain.
In the early 2000s, the price of all homes for sale was roughly one percent, around or above one million dollars. That number slowly increased over the next twenty years, getting as high as 4% in 2020. But then the pandemic hit and completely rattled the real estate market as we know it. The number of homes priced one million dollars or more skyrocketed to more than 8% in the following two years, equating to one in every twelve houses for sale.
The pandemic essentially caused the perfect real estate storm. In a short period of time, you had:
Interest rates hitting record lows
Millions of people are suddenly working remotely all across the globe, allowing mass migrations
A building supply chain shortage, along with fewer construction workers, means there were significantly fewer new homes being built
People who were becoming reluctant to move because of COVID, decreasing the housing inventory
This perfect real estate storm resulted in ultra-competitive sales and a crushingly low inventory of homes, forcing property prices to skyrocket -- driving the percentage of million-dollar-plus homes to increase.
So, if you find yourself in the housing market, either as a buyer or seller, you might be wondering how this affects you and will it change? The answer is yes, but how it will affect you depends on what side of the market you are on. Suppose you are considering selling your home, with one in twelve properties costing over one million dollars and virtually no inventory. The price you can demand for your house is as high as it likely ever will be. Conversely, suppose you are on the hunt for a new home. You are likely facing the most competition there has ever been, forcing you to remain patient while also being aggressive with your offers. The only way to stand out amongst the crowd is to pay up and offer outstanding terms that favor the seller.
Although this market has been an exciting and turbulent ride, the upward trend of million-dollar homes is troublesome. At the current rates, those who can afford these home prices are the top 1%, and corporations are gobbling up what little inventory is on the market. With the other 99% of the country’s population unable to afford these mortgages, this current market is unsustainable. But what can change? There isn’t a collection of affordable houses that suddenly appears out of thin air, so what will happen then?
What appears to be the most likely candidate for knocking down this rising rate of million-dollar-plus homes has already started to appear: the upward-ticking home interest rate. As the rates increase, mortgages go up, slowing the buying frenzy, and allowing more houses to hit the market. More properties available to purchase means more options for buyers, forcing homeowners to drop their asking price. But this evolution is slow, and not everyone can wait it out to see what will happen in the next six, twelve, or eighteen months. My advice? Have a plan, and don’t wait.
As I said above, if you plan to sell, there has rarely been a better day than today. Putting your house on the market, you will likely gain an incredible amount of interest resulting in a sale price you might not have imagined two years ago. If you are buying, understand that the competition is stiff. Know your budget and what you’re willing to spend, be aggressive, and know when to back out. It may take time, but you’ll land the house you want if you stick with it -- with the right agent.
Housing prices are higher than they have ever been. There are considerably more million-dollar homes now than two years ago, and because this isn’t sustainable, it won’t remain this way forever. So use this time to your advantage. Get top dollar for your home, or snag the ultra-low interest rates before they inevitably grow significantly higher.