Nearly 45% of the US population have been vaccinated with at least one dose of a COVID-19 vaccine, giving way to an improving job market and greater mobility. With the latest economic stimulus, many are receiving urgently needed relief. With all of these factors, consumer confidence surged last month to its highest level since the pandemic began.
That sounds good on paper. But if prices continue to rise in a real estate market already exhausted by buyer demand, will another influx of willing and able buyers make matters worse? Or will more sellers enter the market as those who persevered regain confidence in the economy?
Consumer confidence rises sharply in April
After a strong result in March, the Conference Board Board’s consumer confidence index achieved a score of 121.7 in April versus 109.
The rapidly increasing confidence in the economy is mainly due to the introduction of vaccines and the recovering labor market. The short-term business prospects also increased moderately. The expectation index is now 109.8, 1.5 points more than in the previous month.
“Consumer perceptions of the current situation improved significantly in April, suggesting that the economic recovery accelerated further into the beginning of the second quarter,” said Lynn Franco, senior director of economic indicators at the Conference Board. Consumers were “more optimistic about their income prospects, possibly due to the improving labor market and the recent round of economic reviews”.
What does this mean for real estate?
While it is positive to see consumer confidence growing, its impact on the current real estate market could make matters even more interesting. Right now, property prices are rising much faster than expected, even though they are already more expensive than ever. The S & P / Case-Shiller US National Home Price Index stands at 238 points in February 2021.
Total home price income is up 12% year over year. The scarce supply of apartments on all markets and the exhausted buyer demand have pushed up property prices. In April, homes were sold in an average of just 43 days – 20 days faster than April 2020.
It’s important to keep the context of last April in mind. It was messy. Remember, it was the first full month of the COVID-19 pandemic in the United States. Many real estate agents were considered “non-essential workers” and some markets were frozen. But the contrast in the average days on the market remains strong.
With such high buyer demand, bidding wars have led to massive price increases. Approximately half of the homes in the market receive multiple offers, and most sell well above list prices. As consumer confidence continues to rise, the economic foundation tells us that more buyers will enter the market due to stronger income growth, less fear, and increased mobility. And sellers who have held out due to COVID-19 uncertainty can finally list their home in hopes of taking advantage of market prices before they flatten out.
The question up front: will there be enough sellers entering the market to give buyers and house prices more leeway? Or is the supply becoming increasingly scarce, which leads to a possible market crash?
The Internet seems to think the latter is possible.
Online searches for “when will the housing market collapse” are large
Despite growing consumer confidence, the feeling remains that the real estate market may collapse.
Data from Google suggests that searches for the key phrase “when will the property market collapse” rose 2,450% through April. Of course, these searches come amid massive spikes in house prices that reluctantly made many Americans remember a time not so long ago – 2006.
In 2006 the Case-Shiller index had reached an all-time high of 184 points. Fifteen years later, we left that number in the dust.
JP Morgan Research stepped in, saying, “After having rallied robustly over the past five years, the nationwide nominal house price index is now 40% above its 2012 low and 4% above its 2006 high. If 2006 was a historic bubble, it should current price levels are examined more closely. “
But do you have to worry too much? Experts don’t believe. The rating agency Fitch Ratings estimates that homes are currently overvalued by up to 5.5%. Despite our recent gains, we are still faced with above-average unemployment and a recovering economy. As a result, economists and other experts believe that these prices are unsustainable.
However, many experts believe that a slight correction is far more likely than a crash. The demand for buyers remains high, particularly in the case of single-family homes. The economics of this housing market are inherently different from those in 2006.
“We’re not going to see a crash in the real estate market, but we do expect the truly unsustainable growth rates we saw particularly in 2020 to cool,” said Robert Dietz, chief economist for the National Association of Home Builders. “If home prices grow faster than incomes, that is ultimately an unsustainable trend.”
2020 ushered in one of the strangest years in business and real estate, but fundamentals point to the possibility of calming winds on the horizon. Business as usual can return soon.
Whether this is the case or not is up to the jury.
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