The COVID-19 economy has caused some pretty volatile markets. Stocks fell early in the pandemic, then recovered quickly. Oil crashed, then soared. Commodity indices bounced back in 2021 on rising inflation. Perhaps most worrying is the situation in the US real estate market. Prices are skyrocketing, bidding wars are commonplace, and buyers are scrambling to buy properties they’ve never even seen.
For some, the situation in 2021 is eerily reminiscent of the 2008 housing crisis. The fear of a bubble in the real estate market is real, and experts are divided on whether a crash is about to happen. This article examines the factors driving the US housing market boom. It also evaluates the underlying factors fueling fears of a potential correction, and provides insight on whether we are in a bubble that is about to burst.
What’s happening to the housing market?
According to Realtor.com’s monthly National Real Estate Report for June 2021, the median list price of a US home jumped to $385,000. This represents a 12.7% increase in average list prices as compared to June 2020. In real estate terms, that kind of growth marks a great growth.
The report also addressed the question of inventory. When realtors talk about inventory, they mean the number of homes available for sale. Realtor.com measures inventory in terms of new monthly listings. Its June 2021 report showed a 43.1% drop in inventory as compared to June 2020.
This represents a sharp decline, but not as sharp as the one we saw in May. In May 2021, the inventory reduced by 50.9% as compared to the same month in 2020. As we’ll see, these inventory trends are a major reason why prices are rising so quickly.
Realtor.com also closely analyzes real estate trends in major US metro areas. June 2021 saw average list prices across major cities grow at a slower rate of 5.3% compared to last June. Home inventories also declined by 40.5% in June 2021 in major metro areas. This was followed by a decrease of 49.4% in May 2021, when both the months are compared to their 2020 counterparts.
In short: Home inventories are low, prices are rising fast, and properties are selling fast. The typical home spent only 37 days on the market in June 2021 before finding a buyer. In June 2020, it averaged 72 days – nearly double its current clip.
