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Housing Market Cools Off, but is Still Hot

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Wednesday January 6, 2021
Housing Market Cools Off, but is Still Hot

Let’s cut straight to the chase; we expect housing prices to decrease slightly more as the housing price point finds the equilibrium. Prices have been soaring for a long time, much to the amazement of many people, but there is always a cap on what the market will bear.
According to a new report from Attom Data Solutions (“ADS”), reviewing data from the 4th quarter of 2020, owning a home is unaffordable for those making the median income in 59% of the counties across the country; this is up from 43% in 2019, and 33% in 2017. The methodology of this report is important: ADS compared the median home price with the average wage in 499 counties across the nation. ADS made calculations based on the assumption that each homeowner had a $100,000 loan, and adding major expenses associated with home ownership; this information was then compared with the average weekly earner of homes with two earners. ADS determined that a home was unaffordable if the total “cost” exceeded the average household’s income by 28%.
The reality is that homes are getting more expensive as a result of a number of factors interacting: (1) pre-COVID, the supply of homes was historically low; (2) demand for homes increased because there were multiple waves of buyers entering the market at the same time; and (3) the average income of these buyers was significantly higher than that of the general population. These three factors combined to create a perfect storm of affluent people competing against each other for a limited number of homes, which resulted in higher-than-normal sales. As the housing market observed these increasing prices, other sellers responded by asking for higher and higher prices until the market hit its cap. This perspective is supported by the numbers; home prices have increased by roughly 10% in 75% of the counties. In 90% of counties across the country, this price appreciation has outpaced wage growth.
While selling a home right now will still benefit from historically low inventory (though inventory is improving), it is important to note that all signs point to the conclusion that the market has peaked. Moving forward, we expect that the red-hot appreciation in the housing market will cool but only to a simmering boil.
At the Chernov Team we understand that knowledge is power, and knowledge of how the market is behaving is powerful knowledge indeed. At the Chernov Team we know that whoever comes to the table most prepared leaves with the most, and the Chernov Team always leaves the table with the most.

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