June 2020—There’s no question that COVID-19 put a pause on real estate activity earlier this year. But summer is proving to be the new spring for home searches now that businesses have largely re-opened across the country. Reasons to move haven’t changed and buyers are back out there looking for the perfect opportunity as they get comfortable with taking the recommended health precautions.
Low Inventory Is Making the Biggest Impact on Home Prices
There’s a catch to the news that buyers are back. We’re facing an undersupply of homes listed for sale, which varies by location and price point. According to the national Association of realtors (NAR), we currently have only 4.1 months’ supply of homes on the market nationally, even less in the Greater Cincinnati area. Compare that to 8.5 months’ supply ten years ago. Even with the economic events from the pandemic, we’re still in a seller’s market. Consider this local statistic: For the week of June 9, 2020, pending homes (under contract) in Cincinnati outnumbered new listings, 743 to 662 (Source: MLS of Greater Cincinnati). More homes are selling than coming on the market.
Low listing inventory puts an upward pressure on prices. It’s simple economics: when there is less of an item for sale that people want, consumers are willing to pay more for that item. And in lower to average price points, the undersupply of homes often prompts bidding wars, which push prices even higher.
Factors Beyond Inventory
Of course, there are many other economic factors that can affect consumer supply and demand curve in real estate. Here are the big ones besides inventory.
The rise and fall of mortgage rates. Affordability and purchasing power of the consumer directly impacts supply and demand. If rates are low as they are today, more people can afford to buy.
The cost of building materials. New home builders’ prices reflect increased costs in materials, pushing new home prices up.
Household incomes. When people are doing well, they can afford to pay more for homes. When they’re not earning as much, demand goes down and prices fall.
Local market factors and jobs. A sudden shift of people into or out of a local market can have a dramatic effect on supply and demand. For example, if an anchor business moves out of town, suddenly home values shift as demand drops and supply increases.
Local policy. Favorable tax incentives and low development fees for builders makes it more attractive to build new homes, increasing consumer demand for below-market-value prices on new construction.
There are currently more buyers than sellers in the Cincinnati area and that is the number one factor keeping home prices elevated. If you’re wondering what your home is worth in this opportune time, contact Platinum Service Realty for a comparative market analysis.
Real Estate Term of the Week
Months’ Supply: Refers to the number of months it would take for the current inventory of homes on the market to sell given the current sales pace. Historically, six months of supply is associated with moderate price appreciation, and a lower level of months’ supply tends to push prices up more rapidly.