Amazingly, mortgage rates continue to hit new record lows, making financing a home increasingly affordable. Now if only there were enough homes for sale.
In December, there were just 685,482 homes listed for sale in the entire country, the lowest level since Realtor.com began keeping track in 2016. That’s a 39.6% decrease since December 2019.
In fact, the number of active listings has been dwindling since April, according to Realtor.com data. This tracks with a trend of diminishing housing supply since the pandemic began, as logged by the National Association of Realtors. Buyers—especially well-off ones—have seen their buying power boosted by bargain-basement interest rates, which hit yet another record low on Thursday when the average rate for a 30-year fixed-rate mortgage came in at just 2.65%.
The rates are so low that in 63% of U.S. counties, it was cheaper to buy a three-bedroom home than rent one, even as listing prices jumped, according to a report by data firm Attom Data Solutions, which described the findings as “startling.”
“Home-prices are rising faster than rents and wages in a majority of the country. Yet, home ownership is still more affordable, as amazingly low mortgage rates that dropped below 3% are helping to keep the cost of rising home prices in check,“ said Todd Teta, chief product officer of ATTOM Data Solutions, in a press release. “Declining interest rates are having a notable impact on the housing market and home ownership.”
Low interest rates, a shortfall of housing production since the last financial crisis, declining housing inventory, a shift in family spending toward housing, and pandemic-induced demand for second homes have all contributed to a “perfect storm” of factors propelling the housing market, even as the pandemic produces economic headwinds, according to an analysis by Don Layton, senior industry fellow at Harvard University’s Joint Center on Housing Studies, published Thursday. Layton predicted high home values would provide financially distressed homeowners a measure of security against foreclosure, giving them the option to use home equity loans to ride out periods of financial hardship, or to sell their higher-valued homes if they could no longer afford to live in them. This could help avert a wave of foreclosures that might otherwise occur when pandemic aid forbearance programs begin to expire in March.
The rising prices have some observers wondering whether the red-hot housing market could turn into a bubble. Economists at Wells Fargo noted in a recent commentary that the median price of an existing single-family home surged 15.1% over the past year. However, they saw several key differences between today’s housing boom and the housing bubble of the early 2000s.
Firstly, the rise in prices seems to have been driven by a “race for living space” rather than by speculation. At the same time, the housing supply has been disrupted as fewer people want to sell. “Folks that were thinking about downsizing are now holding onto their current homes because they need them for workspace or to house their adult children returning from school or urban apartments,” the report said. And perhaps most importantly, lenders are showing more discipline than they did in the years leading up to the housing crisis—loan qualification standards became stricter at the onset of the pandemic and have stayed that way.