Home prices keep going up, but buyers can’t get enough

Experts share demand drivers behind current real estate boom
(Photo: Maxim Maslov, Dreamstime)

Despite increasing home prices, housing supply is shrinking as buyers continue their exodus from dense urban areas. NAR predicts prices will grow 8% in 2021, and 5.5% the following year. There are several factors driving demand, according to Danielle Hale, chief economist at Realtor.com.

Related: Real estate market is red hot

During the National Association of Realtors‘ 2020 Real Estate Forecast Summit, which was held virtually on Dec. 10, Hale noted that following the pandemic, most sellers expected home prices to decline the way it did during the last recession, and for the most part, they’ve been slow to react to the reality. Some sellers may not be willing to risk exposure to COVID-19 that comes with showing and selling a home, and buying a new one, she added.

Furthermore, “sellers are often also buyers, so unless they’re relocating from a really hot real estate market to a cooler real estate market, it means that they face a lot of the same challenges, and fast sales pace when they’re looking for their new home.”

“Everybody wants builders to build more, but it’s just not that easy,” John Burns, CEO of John Burns Real Estate Consulting, said. Prior to the pandemic, outlying areas around large cities weren’t in demand, Burns noted. Now, “home builders are buying land like crazy,” he said, “so they’re getting going, but it’s going to take a while.”

Today’s economic uncertainty is often compared to the Great Recession, but Burns sees a parallel between the 2020 recession and the 2001 recession, “which started with a stock market correction and then we had 9/11 … 12 years after the S&L debacle.”

He added that “the Housing Market Index, which is a three-question survey, is at an all-time high, so the builders have never been more optimistic. We’re going to see some more construction.”

Related: How indoor air quality helps builders stand out

Ali Wolf, chief economist for Meyers Research, said that the strong demand for housing is masking challenges for builders. Builders are selling homes faster than they can build them, she said, with supply chain issues and increasing costs. Owners are having to wait a year for a new home, and builders are worried about “[losing] them along the way.”

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Cities like Phoenix, Las Vegas, Salt Lake City and Denver are the hottest markets in the West, Wolf said.

Burns added, “it’s the tech markets that were kicking butt before the pandemic started and now have been super accelerated.”

Denver has grown as a tech hub over the years. CrunchBase reported that Colorado startups raised $2.4 billion in 2018, and $2.3 billion in 2019. In 2020, nearly $700 million has been invested in Colorado firms, with about $298 million invested in Denver.

First-time, millennial home buyers

The housing market is especially hard for first-time homebuyers, Hale said. With rates as low as they are, she explained, buyers are actually paying less on their mortgages than they would have a year ago, despite the increase in home prices.

Related: Mile-high millennials—What the next generation of homebuyers means for builders

“For first time homebuyers, the biggest hurdle is not necessarily the monthly payment, but getting in the door in the first place, and having the funds for a down payment, paying those closing costs,” she said.

Wolf said that 60% of millennials have saved more this year than last year. Their top priorities with those savings are to keep an emergency savings fund or invest in the stock market, but using it as a down payment on a house came in third.

Danielle Andrus

Danielle Andrus was previously the managing editor for Colorado Builder, and is currently Editor for the Journal of Financial Planning.

Danielle Andrus has 343 posts and counting. See all posts by Danielle Andrus

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