Homebuyers Are Insatiable But Homeowners Aren't Selling

Despite the ongoing Coronavirus and economic uncertainties, the housing market is sizzling. For the four-week period ending August 9, the median price of sold homes jumped 10%—the largest increase in over six years—hitting a new all-time high of $314,000, according to a new report from real estate company Redfin. Compared to last year, prices were up 12%.

That jump is unusual this time of the year, when home prices typically decline after peaking in late June or early July. 

“With the coronavirus and the presidential election, things have been anything but typical this year,” said Redfin agent Brynn Rea. “I don’t feel it slowing down at all right now like it usually does.”

Moreover, homes are selling faster than they typically do this time of year. Of homes that went under contract, 46% found a buyer within two weeks after listing—the highest level since at least 2012. 

One reason homes are selling so quickly is that there’s demand for houses and locations that were regarded as undesirable pre-COVID.

“There’s not an area that isn’t hot right now because of a lack of homes for sale,” said New Jersey Redfin agent Darlene Schror, adding, “the houses that surprise me the most are the ones out in the boondocks . . . Before the pandemic, nobody wanted that stuff. Homes listed in those areas would sit on the market for a long time. Now they are hot.”

Homes are selling closer to their asking price too, with the average sale-to-list price ratio increased to a new record high of 99.1%—up from 98.4% during the same period last year. 

What’s driving up prices and demand is that supply of available homes is way down. Redfin reports active inventory of homes for sale was down 28% for the four-week period ending August 9.

“Right now you have a set of people who are highly motivated to buy—they have the money and they have the desire, and they aren’t afraid of competition,” said Redfin chief economist Daryl Fairweather. “But there is an even bigger set of homeowners who are very comfortable where they are . . .  That imbalance between people who want to buy and people who want to sell is driving up prices.”

What might ease the inventory crunch is the new 0.5% fee added to mortgage refinances,  starting September 1. Since the fee only applies to refinances and not home purchases, homeowners who want to take advantage of low rates have a financial incentive to sell their home and buy a new home. 

The catch, though, is that this could also increase home demand when those sellers buy.