The real estate market has been burning hot over the last few months. Home prices are up over 15% year over year based on a report from the NAR (National association of Realtors). Meanwhile, some extremely competitive markets are waiving inspection contingencies on the home. To an extreme, some markets are seeing offers with zero contingencies. Desperation and panic are overtaking buyers and buying agents as the market boom has resulted in upwards of 15 offers per home on the market. To really understand why this is happening, we have to look at what caused the market to run so hot.
As a whole, a lack of new construction, age distribution, fiscal policy over the past decade, and the pandemic created the perfect storm for this sellers market. Since the housing crisis of 2008, fiscal policy has resulted in mortgage rates remaining near all time lows over the past decade. When the pandemic hit and rates were cut to near zero, it resulted in all time low mortgage rates. This has made buying a home an extremely attractive opportunity.
Millennials have been a growing force in the real estate market. They are reaching the age where they have enough money and are ready to buy a home. Millennials are one of the biggest generations in the US, made up of about 72 million people. As of 2019, they were the biggest force in the market. Additionally, since 2008, new home construction has not kept up with population growth. This means that inventory has not been able to keep up with demand.
Historically low interest rates and a historically high number of people who can afford to buy homes created the perfect storm. There were more buyers than homes for sale, creating scarcity and higher demand. As demand started to creep up during the pandemic, inventory started to decrease. People wanted to sell their homes to upgrade, but they did not want to be stuck without a home. Sellers looked to buy a new home before choosing to sell their current home, which caused more sellers to do the same. This created a positive feedback loop that has resulted in the current market conditions: consistent sales over asking price, waiving inspection contingencies, and a lot of overwhelmed buyers.
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