High Demand and Low Inventory Prompts Bidding Wars

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The most surprising and welcoming news This Week in Real Estate was issued by the Labor Department reporting that the May gain in jobs was the largest one-month increase in U.S. history since at least 1939. The only previous month to register more than 1 million jobs was September 1983 and May 2020 surpassed that figure by 127%. Below are a few newsworthy events from the first week of June that influence our business: 

Summer Home-Buying Set To Take Off. Applications for purchase mortgages gained for the seventh consecutive week to a level that was 18% higher than a year ago, further evidence that we’re headed into a strong summer home-buying season. A seasonally adjusted index measuring purchase applications jumped 5% last week, according to a report from the Mortgage Bankers Association. Just as mortgage applications progressively increased, applications for refinancing simultaneously fell 9% from the prior week, though the level was still 137% higher than a year ago, MBA said. After reaching a peak of 76% earlier this year, refinances now account for less than 60% of activity. The index hit its lowest level since February at 59.5% of total applications, according to the report. “The pent-up demand from homebuyers returning to the market continues to support a recovery from the weekly declines observed earlier this spring,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.

Home Prices: It’s All About Supply And Demand. Making our way through the month of June and entering the second half of the year, we face an undersupply of homes on the market. Keep in mind, this undersupply is going to vary by location and by price point. According to the National Association of Realtors (NAR), across the country, we currently have a 4.1 month supply of homes on the market. Historically, 6 months of supply is considered a balanced market. Anything over 6 months is a buyer’s market, meaning prices will depreciate. Anything below 6 months is a seller’s market, where prices appreciate. “As the economy begins a recovery later in 2020, we expect housing to play a leading role. Housing enters this recession underbuilt, not overbuilt. Estimates vary, but based on demographics and current vacancy rates, the U.S. may have a housing deficit of up to one million units,” says Robert Dietz, Chief Economist for the National Home Builders Association. Given the undersupply of homes on the market today, there is upward pressure on prices. Looking at simple economics, when there is less of an item for sale and the demand is high, consumers are willing to pay more for that item. The undersupply is also prompting bidding wars, which can drive price points higher in the home sale process. The major institutions expect home prices to appreciate through 2022.

May Sees Biggest Jobs Increase Ever Of 2.5 Million As Economy Starts To Recover From Coronavirus. Employment stunningly rose by 2.5 million in May and the jobless rate declined to 13.3%, according to data Friday from the Labor Department that was far better than economists had been expecting and indicated that an economic turnaround could be close at hand. The stunning gains come just three months after the U.S. had boasted a 3.5% unemployment rate, the lowest in 50 years, then saw that erased in an instant. The U.S. economy had been enjoying the longest expansion in its history but had to go into almost complete lockdown due to stay-at-home orders issued across the country. The May gain was by far the biggest one-month jobs surge in U.S. history since at least 1939. The only previous month to register more than a million jobs was September 1983, at 1.1 million.

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