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“Insane. Crazy. Alarming. The Wild, Wild West.” These are the descriptors top real estate agents across the nation use to paint a picture of today’s housing market. It’s been over a year since low mortgage rates, remote work, and a surge in relocations fueled a real estate buying spree bigger than anyone could have predicted — and which America’s housing inventory could not possibly satisfy.
In Q2 2021, 98% of real estate agents in our Summer / Fall Top Agent Insights Survey said it was a seller’s market, up from 79% the year before. Relatedly, the entire U.S. is seeing double-digit home price gains. Although we’re in a completely different context from the 2008 housing boom — and analysts aren’t expecting a crash — we’re once again finding out just how much heat the market can withstand.
As bidding wars continue to reach fever pitch, agents report that buyers are starting to hit a wall. New construction has proven to be unreliable as lumber prices soar and the reality of chronic underbuilding takes its toll. Vaccines have given sellers the confidence to list their homes — but where will they move to? Given the challenges ahead, our latest data points to these 7 key trends that will shape the housing market for the latter half of 2021.
For the first time since Q4 2020, the percentage of agents who say “bidding wars in my market are on the rise” declined to 37% — down from 52% the quarter prior. Meanwhile, the group of agents who say bidding wars are at their peak grew from 42% to 54%, indicating that the multiple offer craze could be at its most extreme as it approaches a ceiling. “Buyers are struggling,” said survey participant Lisa Adragna, a top real estate agent serving Long Island. “They are either throwing in the towel or feeling the need to pay way over asking to even be considered for a home.”
Access to the COVID-19 vaccine has become universal across the country, and more real estate agents are seeing the impact of vaccines on their market as a result. In Q2, 33% of agents said vaccines were affecting their market, compared to 22% who said the same the previous quarter. The top vaccine impact seen by 45% of agents is that health concerns among sellers have dropped considerably.
What’s a brand-new house worth in today’s market? It’s anyone’s guess. According to a report from the National Association of Home Builders, the cost of framing lumber used to build houses skyrocketed 250% in the 12 months leading up to April 2021, from $350 to $1,200 per thousand board feet. This has added nearly $36,000 to the average value of a new single-family home.
Our survey shows that buyers are experiencing the ripple effects of the price changes, which have been harsh. In our survey 56% of agents say builders are having to increase prices on in-contract buyers due to raw material cost increases, while 45% report that builders are having to price homes later in the build cycle to account for these fluctuations, fueling uncertainty.
The situation has put buyers on the defensive — 31% of agents say buyers are starting to show reluctance and concern about entering the new construction market, while 16% have seen buyers have to exit their contracts (and lose their hefty deposits) because they’re unable to afford the new price of the home.
As the economy reopens and gradually improves post-vaccine, buyers are operating under pressure knowing the golden era of the sub-3% mortgage won’t last forever. As such, 30% of agents in our survey say buyers are encouraged to lock in a low mortgage rate while they can, stoking more demand.
“I am watching people get priced out of a purchase as mortgage interest rates keep them on their toes,” comments survey participant Leigh Tripathi, a top real estate agent in the New York City suburbs. “If they don’t lock in at the right moment and rates rise 0.25%, they’ve lost their shot to buy. This makes all involved nervous because they may be under contract already. In other words, being under contract is no longer considered a done deal.”
Meanwhile, competitive market conditions have fueled a rise in cash deals. “Cash buyers are king,” says survey participant Dave Gaudreau, a top real estate agent in Merritt Island, Florida. “Buyers with finance contingencies cannot compete.”
Some have speculated that high prices could encourage more sellers to list by stoking a “carpe diem” reaction. Our data bears this out. In fact, 49% of agents responding in our survey say they’ve already seen this trend in their market result in some additional listings. Looking ahead, 48% of agents say they expect this sense of seller “FOMO,” aka fear of missing out, to unlock more listings this summer and fall. “I have seen sellers jump on the bandwagon trying to cash out while the market is high,” noted survey participant Pat Tasker, a top real estate agent in Milwaukee.