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The median price of a single-family home in the U.S. reached a record $350,000 in May, rising from the previous record of $341,600, set the month before, the National Association of Realtors (NAR) reported.
Prices have increased 24 percent in the last 12 months, the fastest year-on-year gain since 1999 when the NAR began keeping data, the group said.
The number of homes selling for at least $1 million in May doubled from a year earlier, according to the NAR.
Home prices rose as corporations released employees from their offices to work at home. Many newly liberated families moved into the suburbs and beyond.
The surge in demand, combined with low interest rates, drove prices up relentlessly, with other prospective buyers deciding they needed to jump into the market to keep from being shut out later by too-high prices or a lack of good-quality properties to buy.
The typical house for sale last month was on the market for just 12 days, matching a sales speed record set in April, according to the NAR.
Now the housing boom is becoming a victim of its own intensity.
Home sales sagged 0.9 percent in May from April, logging the fourth consecutive month of diminishing sales, the NAR said, in part because so few homes are left on the market.
Mortgage applications slumped 17 percent year-on-year for the week ending 11 June, the Mortgage Bankers Association noted.
Residential building permits, a construction industry bellwether, also declined.
As we have detailed, with the masses living paycheck-to-paycheck, only 35 percent of people say now is a good time to buy a home, according to a survey by the Federal National Mortgage Association, the smallest proportion since 2010.
With fewer buyers bidding for fewer remaining homes, the competition is becoming more intense. More than half of buyers in May made down payments of at least 20 percent on their purchases, or at least $70,000 in cash, freezing out potential buyers who might be able to afford monthly house payments but lack the cash up front to buy in.
Available homes now receive several offers and more than half of homes sold in May fetched more than their asking price, according to brokerage company Redfin.
As risk-averse lenders reserve their funds for buyers who can make huge down payments, households with moderate incomes remain out in the cold.
“Affordability now seems to be squeezing away some buyers,” NAR chief economist Lawrence Yun told The Wall Street Journal.
“There are so many people who have been outbid, frustrated that they’re unable to buy,” he said.
The housing squeeze is likely to continue for at least three years, analysts say, as we reported in “Housing Shortage Will Last For Years, Goldman Says,” 1 June, 2021.
Building lots have become scarce and those that remain are more costly; construction materials are in short supply and the price surge in lumber, metals, and other materials will keep the price of a new home high for at least the next two years.
The U.S. needs to build 1.5 to 1.6 million new homes a year to meet demand, the NAR has said, but shortages of materials, land, and labor are likely to limit this year’s number to less than half that, according to the association.
TREND FORECAST: We maintain or forecast that the “Biden Bounce” will generate a sharply booming economic recovery that will last as long as interest rates remain low and Washington and the Federal Reserve continue to pump cheap money into the economy and equity markets.
Thus, for the short term, the housing boom in hot areas will be maintained, and even when the “Greatest Depression” hits, while real estate prices in those sectors will decline, they will not fall as fast or sharply as those in lower middle-income sectors.