The frenzied pace of the housing market has started to abate, but that means that instead of boiling over, the market is just hot. For the first time this year, Existing Home Sales were down from a year ago — 1.5% below the August 2020 rate. The year-over-year comparisons are likely to show drops for the rest of 2021 because activity was elevated in the last four months of 2020.
Although the pace of activity is edging lower, prices continue to remain elevated. The median home price for an existing home in August was $356,700, up nearly 15% from a year ago. If you can believe it, this data point was seen as a positive, because the pace of annual price growth decelerated from a sizzling 18% in July.
The culprit for high prices is not just demand, but also supply: the number of homes for sale (inventory) is down 13.4% from a year ago. Unsold inventory sits at a 2.6-month supply at the current sales pace. The good news is that inventory is higher than the record low of 1.9 months, recorded in December 2020, but it is still below what is considered the “normal” range of three to six months.
Until more people are willing to list their homes, many hopeful buyers are turning to newly constructed dwellings. New home sales made up 27% of all single -family homes for sale in August, the largest share since records began in 1982. Builders have been trying to keep up with the demand, especially as the cost of materials has come back to earth. The inventory of new homes has increased to 6.1 months at the current sales rate, but that expanded supply has not kept prices at bay: the median price for a new home stands at $390,900, a 15% increase from a year ago.
Although mortgage interest rates remain relatively low, these price gains are making a home purchase less affordable. The Federal Reserve Bank of Atlanta has developed a tool, which presents a national view of affordability for the median homeowner. As of July, a typical household would need 32.1%of its income to cover mortgage payments on a median-priced home, the highest share since Nov. 2008.
Compounding the problem is the fact that first time buyers have struggled to compete with those who are armed with cash and no contingencies. The average time for selling an existing home was 17 days in August, and 87%of all sales took less than a month. And it is not just financing that is making it difficult to enter the market — first-time buyers are also struggling to find lower priced homes. Existing homes that sold under $250,000 represented just 30% of all transactions in August, down from 44% two years ago. The news is even worse for new homes, where just 28 percent were sold for less than $300,000, down from 43% two years ago.
Despite the changing market conditions, my advice on purchasing a home remains the same: crunch the numbers. Consider whether buying might preclude you from addressing other important financial issues, like paying down student loans or saving for retirement. Begin your calculations by plugging in mortgage principal and interest, homeowners’ insurance, and taxes, upkeep and maintenance (experts suggest 1- 3% of the purchase price for, depending on the age of the house and its condition), and closing costs, which can add an average of about $6,000 — or more in some markets. After considering all of this, you may find that renting is more viable for you.
(Jill Schlesinger, CFP, is a CBS News business analyst. A former options trader and CIO of an investment advisory firm, she welcomes comments and questions at firstname.lastname@example.org. Check her website at www.jillonmoney.com)
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