While many industries fell victim to the COVID-19 pandemic and subsequent stay-home measures, the U.S. housing market boomed, forcing bidding wars among home buyers and leading some experts to believe the market will soon cool.
According to the National Association of Realtors, the median existing-home price for all housing types in March 2021 was $329,100, up 17.2% from March 2020 as prices increased in every region. Prices rose in several cities, led by year-over-year gains of 17.4% in Phoenix, 17% in San Diego and 15.4% in Seattle.
"The housing market is hot. Very hot," NAR Chief Economist Lawrence Yun told FOX Television Stations Tuesday. "And there are so many buyers rushing into the market but not enough supply."
Demand for housing has surged during the pandemic. Americans fortunate enough to work from home have sought more space or a different location. Low mortgage rates are also encouraging buyers: The average 30-year fixed, home loan rate fell in April below 3% for the first time in two months.
But the increased demand comes amid a decrease in supply. Yun said the short supply has made the housing market very competitive throughout the country — so competitive that potential buyers are resorting to new tactics to make their offers more attractive.
"So from buyers’ perspective, one way to win the bid is to offer a higher price, perhaps put in the escalation clause," Yun added. "Other people may not be in a position to offer higher prices but maybe they would say, ‘I will forgo home inspection.’"
Yun said other tactics include waiving appraisals and making cash offers.
But the overly hot housing market could soon cool. Yun predicts a balance between buyers and sellers by 2022.
"Mortgage rates will probably begin to rise, even though minimally, as people wait throughout the year," he continued.
Yun doesn’t think the country will see a housing market crash like the 2007-2008 crisis that was due in part to buyers going above their budgets. He said in 2021, more Americans are sticking within their budgets or lenders will not give loans to buyers looking to overstretch. He also said more Americans are taking out a 30-year fixed-rate mortgage, creating a consistent monthly payment.
Yun believes the market is currently favorable for those looking to buy a house.
"If people feel comfortable in their finances, buying a home has proven to be a good way to build wealth and live comfortably," he added.
The Associated Press contributed to this report. This story was reported from Los Angeles.