Relief for the housing market

By: J. David Chapman/June 10, 2021

The last year has been quite a ride for residential real estate. Allow me to recap a few of the history-making statistics from last month. Median home sale prices in the U.S. set a record high at $355,558 up 24% year-over-year. Fifty-two percent of homes sold for more than their list price, setting a new record, up from 26% for the same period last year. Days-on-market also set a new record low of 16 days on market during the period, down from 37 days the same period in 2020.

This is not good news if you are looking for an affordable housing option, or buying a new home without one to sell. The good news is there are signs that there might be some relief in sight. Although still healthy, it appears that the market may be starting a post-pandemic cool-down. Both pending sales and asking prices began to decline or flatten in the four weeks ending on Memorial Day. The success of the vaccine in the U.S. appears to be returning much of life back to normal, and I predict we will see housing return to a sane growth pattern. During the pandemic we saw consumers spending their disposable income on housing, both buying new homes and remodeling their existing homes. They spent an extraordinary amount of time in their homes and found they were not satisfied with their living situation, had the money to do something about it, and made changes. Now, fewer people are commenting on their homes and are talking more about traveling, dining and entertainment.

This is great news for the hospitality industry, assuming it is able to take advantage of the new surge in business, and frankly the housing industry was unable to continue the rapid acceleration of construction and sales. It was simply growing at an unhealthy and unsustainable rate. Don’t get me wrong – I’m not predicting problems in the housing industry. In fact, most of my homebuilding colleagues will welcome a more normal business environment and are hoping for a more affordable housing model to develop for buyers. The last year has particularly hurt those purchasing in the lower end of the market and helped those purchasing at the top end of the pricing market. This has accelerated the already increasing gap between those having money and those not, and that is not a healthy situation for anyone.

J. David Chapman is an associate professor of finance and real estate at the University of Central Oklahoma (jchapman7@uco.edu).