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With demand for homes outpacing new listings, buyer competition continues to intensify. On average, there were four offers per home sold (closed) in February, according to NAR’s latest February REALTORS® Confidence Index Report, a monthly survey of REALTORS® about their transactions. One year ago, there were two to three buyers for every home sold. The intense competition has led to double-digit price growth and properties selling in record time. To get back to a healthy supply level equivalent to 6 months of monthly demand, an additional 2.7 million homes should be on the market for sale.
Homes Typically Sold in 20 Days Nationally
With more intense competition, properties typically sold in 20 days (median), a record low since the housing market’s recovery in 2012. REALTORS® reported 74% of existing homes sold in February 2021 were on the market for less than 30 days.
In many states, properties were on the market for 16 to 30 days most states. In Idaho and South Dakota, properties sold even faster, with the median at 15 days.
Properties selling fast in the South and West regions
Drilling down the number of days properties typically stayed on the market by price range across regions shows even more dramatic trends. In the West region, homes priced at $250,000 to $750,0000 were typically under contract in 8 days. In the South, properties in the $250,000 to $750,000 price range were typically under contract in about two weeks. With the demand outpacing supply, the median existing-home sales prices have been rising over 10% year-over-year across all U.S. regions since August 2020.
2.7 Million More Homes for Sale Needed to Be on the Market
Every buyer, every REALTOR® helping a buyer, and anyone following the housing market knows that there are simply not enough homes that are being sold on the market nor being constructed to meet the demand for owned or rented housing. As of January, the combined inventory of existing-homes and new homes for sale was just at 1.7 months.1 As the chart below shows, a balanced housing market is one that requires the inventory of homes for sale to be equivalent to about six months of the monthly pace of demand. Every additional supply of homes for sale on the market equivalent to 1 month of demand can reduce the price appreciation by 2 to 3 percentage points.
As of January, the total level of new and existing-home sales measured on a seasonally adjusted annual rate was 7.58 million, which is equivalent to a monthly demand of 631,917 housing units. To meet six months of this monthly pace of demand, 3.79 million homes needed to be on the market as of January 2021. But the actual level of inventory of new and existing-homes for sale was only at 1.07 million, yielding a shortage of 2.72 million homes on the market in January 2021.
3.2 Million Backlog of New 1-Unit and Multifamily Housing
Counting both the demand for single-family and multifamily housing needed to meet net household formation and to replace demolished or lost housing, there is a backlog in construction of 3.2 million new homes as of 2020.2 The backlog started to build up since 2014, but that backlog has built up to 3.2 million as of the end of 2020.
Addressing this backlog requires a combination of policies such as upzoning and increasing construction labor , but these policies will won’t meet the backlog of housing shortage quickly. Buyers should expect continued strong market competition, a fast-churning market, and continued home price appreciation of about 7% in 2021.
1 New and existing home sales are measured at seasonally adjusted annual rate and then divided by 12; inventory of new and existing homes for sale is the sum of non-seasonally adjusted data.
2 Based on the number of households from the March Current Population Survey of the US Census Bureau and the Bureau of Labor Statistics and a replacement rate of 0.00418 for every housing unit, estimated by the author from the American Housing Survey 2011-2013 Components of Inventory Change, https://www.huduser.gov/portal/datasets/cinch/cinch13/cinch11-13.pdf.
