Episode 10: 4 Astounding Factors Affecting the Real Estate Market in Early 2021
Here are the show notes with links and information mentioned on the podcast.
Screen Shots and Links
Mortgage Rate Chart Screen Shot:
Visit the Freddie Mac Mortgage Rates page for current and historical mortgage rates.
Housing Inventory Screen Shot:
1.3 months single family housing inventory in Atlanta market.
Lumber Price Chart Screen Shot:
Check lumber prices here.
Welcome to another episode of the Agent On Duty podcast. I am John Marion and I am the agent on duty.
This podcast is focused on the residential real estate industry and is for everyone who is interested in real estate. This is episode 10 and today I’m talking about things that are affecting all homeowners, home buyers and home sellers.
I’m calling this episode 4 Astounding Factors Affecting the Real Estate Market in Early 2021. So let’s get started talking about these four astounding factors.
Low Mortgage Interest Rates
Number one is low interest rates. Mortgage interest rates are low. On January 7th Freddie Mac reported that mortgage rates hit a new record low the first week of 2021. While interest rates will probably go up slightly. This year it’s expected they will remain relatively low throughout the rest of the year.
REFI for Homeowners
So low interest rates favor homeowners who can refinance their existing mortgage to a lower rate. So if you are a home owner currently, check your mortgage statement, see how much your interest rate is. The interest rate now is very low. Chances are you may be in a great position to refinance your loan and get a lower interest rate, which means one, your monthly payment can go down when you refinance and two, the cost of owning the home while you pay it off at a low interest rate means that it will be less over the term of the loan that you actually pay the bank.
So it’s a great time to refinance with low interest rates.
New Mortgage for Home Buyers
Low interest rates also affects buyers, it favors buyers on the purchase of a home. So if you are a home buyer, if you are in the market, looking for a home to buy, this is a great time to get qualified with a lender, lock into your interest rate and buy a home because you’re buying a with borrowed money that is cheap. You you’re borrowing cheap money.
Actually I’m looking right now at a chart on the Freddie Mac site. And I will post a link to the page on the Freddie Mac site that shows the mortgage interest rate, and it tracks this – there’s a chart that tracks the interest rate over time.
And I’ll also take a screenshot of what I’m looking at today. So you can actually go on the show notes and see what I’m looking at today. And with the link, you can check it out at any time how that interest rate goes up and down.
Freddie Mac Mortgage Rate Data
And by the people do ask, what is Freddie Mac?
Freddie Mac is described on Wikipedia as a public government sponsored enterprise. The actual name of this enterprise is the Federal Home Loan Mortgage Corporation.
Sometimes it is described as a quasi-governmental agency. It’s not really a governmental agency, but they’re so entwined with the United States government that it’s referred to as a quasi-governmental agency.
But regardless of that – I don’t want to get into the weeds of what Freddie Mac is and the Treasury Department and Congress and all this kind of stuff.
My point is that this is a credible source of information for what I’m talking about today and the low interest rates.
The reports that I use to monitor the interest rates comes from Freddie Mac, and it is a credible source and the links to Freddie Mac are in the show notes.
Low Housing Inventory
So the second astounding factor affecting the real estate market in early 2021, is low inventory.
The inventory of homes for sale in the market is historically low. I know this is generally true for most of the United States, and it’s certainly true for the Atlanta region where I am.
I’m looking at another chart right now, and I’m going to share this chart as well in the show notes.
So let’s talk about months of inventory on the market, the supply of homes that are available for sale on the market.
Historically, if you look at a chart in my market, and I think my market sort of is a good barometer for what happens in most of the country…
Now there are regional differences, obviously, but the Atlanta market is not typically unusual for what’s happening in most metropolitan areas in the United States for the most part.
And price points may be different, but in general, the trends across the United States, or maybe the Southeast, where I am, is representative of the bigger picture. So normally, if there is such thing as normal in the housing industry, four months of inventory in the market is generally a good point of reference to start with.
And so what that means is that if no other homes hit the market for sale, the existing inventory of homes at the current rate that they’re being sold would be completely sold in four months.
Baseline of Housing Inventory
I just want to use the four months as a baseline because when there’s more than four months of inventory on the market home builders don’t like to build new ones homes, if there’s a lot of inventory on the market. Developers and builders don’t really like to be in the market, constructing new housing, when there’s so much inventory on the market.
So during the last real estate crash, that huge crash – 2008, 9, 10, 11, 12 – where we saw foreclosures and the housing market just crashed, there were many, many months of inventory. The stats that I’m looking at right now just goes back to early 2012, where there was six months of inventory, but it quickly came down in 2013 and 14 to that four month inventory baseline that I talked about. And that’s when home builders starting to get back in the market.
They saw there was the opportunity to start creating new housing because there the housing inventory reached 4 months and was bouncing below four months inventory in 2013 and 14 and 15 and 16.
It went down to three months of inventory and in 2017, 18, 19 – it kind of stayed between three and four and dipped below three months supply a few times.
And then in 2020, it did dip below three months and then it has just gone down dramatically since early 2020. So in the last 12 months in my market it’s gone down from three months of inventory to almost one month of inventory. And it’s 1.3 right now, as of, as of December, 2020. We’re still in January. So we don’t have the statistics yet for yet for January this year.
So through the end of last year we had only 1.3 months of inventory on the market, which is just historically and incredibly and astounding low inventory.
There are buyers that are looking for homes and the homes are just not available.
No Inventory Market Example
Today I had one of my clients call me and he asked me about a home that he’s thinking of buying in a certain area in Cherokee County, Georgia, where I live and where my business is based. And I ran some numbers for him. I did what we call a comparative market analysis to give him a range of price that I think would be appropriate for that single family home. And in that elementary school district where that house is located, which is extremely popular – a good school district. Everybody wants to be in that high school district. And so all the middle schools and the elementary schools in that district are in high demand too, People want to live in those areas.
There is no house listed, active on the market in that elementary school district where the home is located!
So I gave my client the price range that I believe that house would sell for. And I told him it could be higher than that because there’s nothing available.
There’s no competition on the market when he lists it!
So there is extremely low inventory on the market. If you are a home seller, this plays into your hand, this is a sellers market. Buyers just are not finding what they need to buy and to meet that demand builders are having a field day. Developers and both large national companies, sometimes we call them tract builders, and also local builders in my market, just have an unbelievable opportunity in the home construction industry because of the extremely low inventory.
It’s an astounding factor that’s affecting the real estate market now in early 2021!
High Lumber Prices
Okay. Let’s talk about the third astounding factor affecting the real estate market in early 2021: high lumber prices.
Now, obviously the price of lumber affects the housing industry in a significant way. Uh, so lumber prices are really high. It became more important last year when they spiked to historical highs.
How Lumber is Priced – Board Feet
Now, just a brief word about how lumber is priced. I’ll try not to get into the weeds too much on this, but to understand the terminology, I just have to explain how lumber is priced and it’s priced by 1000 board feet. And that’s a term that most people are not familiar with.
What is a board foot of lumber? Well, basically it’s one inch board, one inch thick board of lumber that’s 12 inches wide, and if it’s one foot long, that’s one board foot If it’s two feet long, it’s two board feet, et cetera.
So lumber is sold and priced by 1000 board feet. And so that’s how we know what the price of lumber is in the the market.
Range of Lumber Prices
So normally going back years, many years lumber has been priced between $300 per 1000 board feet and $400 per 1000 board feet. And that’s kind of where it’s bounced around between $300 and $400. And it’s gone up and down a few times over the years, and close to $500 and I think it was 2018 where it actually did spike up for a short period of time up to $600 per 1000 board feet.
So that was, that was kind of historically high spike at that point in time, but it did come back again by the end of the year – by November, it came back down to $300 per 1000 board feet.
Lumber Price Spike of 2020 and 2021
That gives you some background of where lumber is normally expected to trade and where it’s expected to be. And then in July, August of last year it virtually doubled from $300 to $600. And then by September of last year, the price of lumber literally went off the chart and I’ve got a screenshot of this chart, and you could see how it’s grayed out on top of the chart, where it spiked over $900 per 1000 board feet. That’s a tripling of the price from $300 to $900. And it added over almost 10% of the price of, of constructing a new home.
There are shortages of lumber. People have experienced that if you’ve gone into even the big box stores, especially treated lumber – short supply and high demand – with new home construction and people being home because of coronavirus wanting to do remodel projects on their home, or to add additional living space in the home, or add a porch or deck to the outside.
All this has caused a shortage of lumber as well as the low production because of coronavirus when lumber was not produced in 2020 for periods of time because of coronavirus and demand has been very high all this time.
I was expecting lumber to go down towards the end of the year, and it did in November of 2020, it went down to a $500.
So from the $900 spike, it, it did come down very quickly and I was expecting it to bounce between $500 and $600, then going into this year maybe gradually go down to that $400 price range. But it has spiked again $900 on January 5th. And right now, as of January 12th, it’s $800.
So it’s come back down a little bit but the price of lumber is just historically high and it’s literally off the chart – that spike last year – is off the chart. I’m going to post a screenshot to that, and also a link where you can go to the website where I look at the chart to see what the price of lumber is doing on a regular basis. And so I’m hoping that the price of lumber will go down throughout this year. But because of the rate of new home construction and home renovation projects, the price of lumber is going to stay high.
If the supply catches up to demand and the demand goes down a bit those prices will come down obviously, but when that will happen – I’m not sure at this point.
Fear of COVID-19
This leads into the fourth astounding factor affecting the real estate market in early 2021.
And depending on what happens to this fourth factor, that’s going to affect, the low inventory and the high lumber prices.
This fourth factor is fear.
Many people have been afraid of coronavirus. Sellers have not listed their home on the market waiting for an end of COVID-19.
So the spring market was virtually non-existent. It never materialized the way it normally does year after year after year. But the spring market was delayed and we had a good market in the summer and the fall of 2020, as far as home sales go,
But homes sold very quickly and prices have gone up.
But still, there are many, many people that did not sell their homes in 2020 that had planned on doing so because of fear.
Many people have stayed home. They have not wanted to put their house on the market and allow people to come into their home to view their home. And so this has drastically affected the low inventory that we see on the market. And in my opinion, it’s just a matter of time that this will change. The fear of coronavirus will eventually go away.
The high level of fear that people experience now will not last forever. And when coronavirus ends, for whatever reason, a vaccine, when coronavirus ends there’s going to be many, many homes that are listed for sale on the market. And there’s so much demand, pent up demand, that it is going to be a feeding frenzy.
Post COVID-19 Home Sales
And so this is a great time to list your house on the market. Now you virtually have no competition and buyers are out there looking for homes.
I said earlier, new home, construction is up and many buyers are going to new homes, but there are many buyers waiting for those resale homes in neighborhoods where they want to be at price points that will be less than the a new construction home, which has the same square footage, and similar home. Many buyers would prefer to buy an existing home that comes on the market for sale and they’re waiting.
So if you’re a seller now is a good time. If you are a seller that’s waiting for the end of coronavirus, you will be one of many, many sellers that’s going to list their market list their home on the market -I think simultaneously – relatively speaking, simultaneously. There will be many, many homes, and there are many, many buyers. So I think it will still be a sellers market because everyone is not going to put their home on the market exactly at the same time. And I think home sales will happen very quickly when they come on the market.
Eventually that will affect the supply: the demand for lumber and will affect the demand for new homes.
And so I think things will stabilize over time, maybe throughout the rest of this year, by the end of 2021, we’ll see that stabilization, where we’re back to normal inventory and normal supply and demand for lumber, maybe four months of inventory of homes on the market and people that are not afraid of engaging in the real estate market for selling and buying homes because coronavirus most part has gone away and not really a fear factor anymore.
And with interest rates probably remaining relatively low it will be a very healthy market.
Recap of 4 Astounding Factors Affecting the Real Estate Market in Early 2021
Those are my four astounding factors affecting the real estate market in early 2021.
These are low interest rates, low inventory, high lumber prices and fear.
Now I have links, the charts and the information I mentioned on this show for low interest rates, low inventory, and high lumber prices. So you can see the screenshots as of today as I’m recording this podcast. And I will also post the links to the websites that I’m using to access this information you can have direct access to that information as well.
You can access the show notes at innovativeproperties.com/podcast, or just go to innovative properties.com and look for the link on the menu for our podcast to access those show notes.
Thank you for listening, and I hope you enjoyed this edition: 4 Astounding Factors Affecting the Real Estate Market in Early 2021.
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I am John Marion and I am the Agent On Duty.
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