The coronavirus pandemic has officially changed the way we go about our daily lives. It has shifted numerous parts of daily lives in work, school, and extracurriculars. The Housing Market is no different. The market has shifted into a Seller’s Market that is unlike anything we have seen in years. Homes are currently flying off the market and the average number of offers a home on the market is currently getting is 3.7. Let's start off with a snapshot of the market year over year and some of the key changes.
Let’s talk about that. if we look at the snapshot of year over year metrics we can see showings are up 49.5% year-over-year. A lot of people are getting out and wanting to look at home across the country. Purchase applications up are 39%. Existing home sales and new home sales are also both up, knocking at the door of almost 10%.
Where is the issue, right? The issue is in inventory. We know that across the country it’s something that continues to plague us as an industry. But overall, if we look at some of the other metrics year over year, a very strong market as we head into the spring right now here in April.
The other big thing that’s been going on in real estate is we’re seeing a rise in interest rates. The average 30 year fixed as recorded by Freddie Mac is at 3.18% right now. Sixteen times last year, a new low in the average 30 year fixed and it’s starting to come back up and really seeing the return of those rates creeping a little bit higher as the economy improves across the country.
All this, low interest rates, folks running in to buy homes, has caused the inventory challenge across the country. Right now, across the country on average, we’re down about 52% year over year in the number of homes that are available on the market for those that want to buy them. We are seeing listings coming to the market and certainly want to see that continue to grow as we move into a strong spring market and more and more people are putting their homes on the market but right now a deficit across the country.
Experts are forecasting inventory to come back into the market in the second half of the year and more as people get more comfortable. Those that are affected by the pandemic economically and are having to list their homes, and builders have to keep building. But as we stand right now, the inventory situation across the country is pretty dramatic in lack of available homes for sale.
Some of the big things that are bearing in on our market right now relative to low inventory prices rising, one of the questions that’s come up over and over is are we seeing this cash out refinance issue? As we look at this, cash out refinances in 2020 were nothing like 2006. And that’s where these questions come in. OK, is it like back then? Back then in 2006, 89% of the transactions were cash out refinances. 89% of refinances were cash out refinances. Why is that?
We were in an upward trending interest rate environment back in 2006 in the first half of the year. So nobody’s going to be refinancing there to get a better deal for the most part. And where do we see it today? We’ve been in a downward trending interest rate environment for the last year and 33% of the refinances were cash out refinances. The total cashed out like we mentioned, $325 billion back then, $153 billion today in 2020, representing 7% of the tappable equity back then where today it’s only 2%. So very, very different today versus back then.
NAR came out and said this, speaking of demand,
A year ago, there were two to three buyers for every home sold. The intense competition has led to double digit price growth and properties selling in record time. To get back to a healthy supply equivalent of six months of monthly demand, an additional 2.7 million homes should be on the market for sale.
There’s so many things that we talk about in our business. We found a story from Mark Fleming at First American that we want to share it with you. It gives really a good analogy you can use to be able to deliver the reality of the market with low inventory. We’re selling a lot of homes. The market’s very good but inventory remains low. And it goes like this. He says,
As we deal with this low inventory situation, we aren’t not saying it’s not an issue across the country. It very much is, but we’re selling a lot of homes. A lot of homes are moving through the bathtub there in Mark’s analogy. We hope that will give you something to use as you talk to a client or agent possibly, as you talk to somebody about the dynamics that are happening in the market today.