It’s no secret 2021 has been a record year for the housing market. Homebuyers are using pandemic savings to jump on exceptionally low interest rates, and they’ve been putting up with low inventory, high prices, and fierce competition to do it.
According to Redfin, the national median home price has increased every month this year, hitting an all-time high of $377,222 in May. More than half of the homes sold in May — 53.6 percent — sold above list price, an increase of 4.7 percentage points from April. And the number of homes for sale also hit a record low at 1.1 months of supply in May.
Housing supply measures the number of months it would take to sell all the available houses on the market, if no more houses became available. A six-month supply of homes is considered a balanced inventory.
At some point, something’s got to give. So far, there are few indications that home prices, inventory, and interest rates are returning to some semblance of normal. However, consumers have begun to signal that they’ve reached a breaking point and that we may have reached peak demand.
Signs of reaching peak demand
The Fannie Mae Purchase Sentiment Index is a good place to start. In May, 56% of consumers said it was a bad time to buy a house, while 35% said it was a good time to buy a house — a significant change from the near 50-50 split in April.
That sentiment is starting to show up in data. The National Association of Home Builders (NAHB) reported a 5.9 percent decrease in the seasonally adjusted annual rate of newly built, single-family home sales.
NAHB Chief Economist Robert Dietz noted a substantial decrease in the share of home sales below $300,000.
“Entry-level buyers are being most affected by higher prices,” Dietz said in a statement. “Just a year ago, shares of sales priced below $300,000 accounted for 44 percent of sales, while this May it has dropped to 26 percent.”
According to Redfin, seasonally adjusted national home sales fell 0.7%, and pending sales on June 6 were down 9.7% from their peak four weeks prior, although Redfin noted this dip could be due to a brief pause during the Memorial Day holiday weekend.
Finally, June house showings are down significantly from May and April, according to ShowingTime, which compares seven-day averages of weekly showings to the first seven days of the year.
On May 16, the seven-day average of weekly showings was 41.1% above the average for the first week of 2021. By June 1, the seven-day average was just 13.1% above the baseline.
Showings peaked on April 11, when the seven-day average was 53.1% above the baseline.
Is the market cooling or bursting?
While consumers seem to be pumping the breaks on demand, it’s hardly the sign of a bursting housing bubble. Interest rates are still very low and mortgage purchase applications actually increased by 0.3% in the first week of June. Demand is still very much alive, but we may have seen its peak in May.
In the coming weeks, it will be interesting to see if leveling demand has any impact on home prices. If not, incoming inventory and recovering supply chains may stabilize prices and the market.