Is the housing market going to cool down?

It’s been a rough couple of months for anyone looking for deals—particularly on the MLS. People just haven’t been selling their houses. It makes sense that inventory is low. With all the uncertainty about the economy, people are using their homes more than ever. Plus, who wants strangers walking around in their lockdown palace?

Here’s a rundown of our favorite Pro Member-only articles from BPInsights in the month of April.

Is the housing market going to cool down?

According to data provided by the Federal Reserve, inventory bottomed out nationally in October, hitting levels we haven’t seen since 2004. This has led to one heck of a seller’s market over the last couple of months. An agent friend of mine recently told me a place in Denver he was bidding on for a client went for $76,000 over asking. Whoa.

As of February 2021, things may be changing. That month’s supply index for homes in the U.S., jumped up to 4.8, which is the highest level we’ve seen May of 2020. For reference, the average for the four years leading up to the COVID-19 pandemic was 5.6—we’re coming back!

What happens if inventory increases?

Supply and demand tells us that, generally speaking, when supply—or housing inventory—increases, prices will fall, presuming that demand remains constant. Simply put: When there are more houses for the same number of buyers, buyers don’t have to compete as hard as they do now for a limited supply of properties.

My guess is that if this supply glut does come to fruition, we won’t see listing prices drop, but we will see a decline in properties going for significantly over asking.

Unless, of course, mortgage rates continue to rise. As I recently wrote on the BiggerPockets blog, recent inflation news could potentially push mortgage rates higher over the coming months. Even if the rates do climb, however, they’re likely to still stay extremely low—at least from a historical perspective. But these two factors converging could really slow down the craziness we’re currently seeing. Less competition from buyers plus more expensive mortgages feels like a recipe for returning to more normal growth rates.

For more in-depth housing market analysis—including how to interpret recent news from the Bureau of Labor Statistics—check out Will the Housing Market Cool in 2021?

What is inflation—and how does it affect real estate?

Inflation plays an important role in the economy. With unprecedented levels of government stimulus over the last few months, fears of inflation are surfacing after years of stability. What does this mean for your real estate career? What does it mean for you?

Inflation might not be the sexiest topic, but it is an important concept for real estate investors to understand. Real estate is generally considered one of the best ways to hedge against inflation risk, and understanding inflation will help you manage potential concerns and better understand one of the fundamental forces in our economy.

Not inflation-savvy (yet)? In How Does Inflation Affect Real Estate?, I explain:

  • What inflation is—and what happens when it rises
  • Why economists are talking about inflation today
  • The interplay between real estate and inflation… and why investors shouldn’t be that worried.

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