Home Prices Reached First Double-Digit Annual Appreciation since November 2013
According to CoreLogic, homes prices are up 10% from January 2020. This marks a very significant increase, as price appreciation has not reached double digits since November 2013.
When Covid-19 initially came to town, many home owners thought homes sales would suffer, propelling a new buyer’s market and a reduction in home prices. I am sheepishly raising my hand to admit that I was in this camp. With a significant dip in the economy and the job losses that followed, who would be moving and buying homes now? Would people be afraid to look for a new home out of fear of getting sick? With new city regulations only allowing essential travel, were sellers even allowed to show their home? These were uncertain times and many questions lingered, so many sellers decided not to list their homes.
Thankfully, for many sellers, the exact opposite market conditions ensued, and the already existing seller’s market became even more fervent. The Federal Reserve lowered interest rates to record lows to help spur the struggling economy. Mortgage rates followed, so many first time home buyers with jobs took advantage of the low rates and jumped into the market. Another factor that contributed to the intensity was the ability to now work from home. With many company headquarters closing, Zooming with employees became the norm to help prevent the spread of Covid-19. Workers were no longer tied to the cities where their companies were located. Many workers chose to relocate from the cramped conditions and overpriced cities to the sprawling suburbs, and can we blame them? With restaurants being shuttered and the entertainment scene hampered indefinitely, what was keeping these workers in the city? Finally, another contributing factor was the change in structure to the family. With many parents working from home and kids now restricted to home schooling, families were feeling a little cramped. They needed bigger homes and different floor plans. Home offices, once a luxury, were now a must. With already low inventory in most of the nation, competition for homes escalated immensely.
Where do we go from here? According to realtor.com, nationwide, the spring market is down 200,000 new listings. There are half as many homes for sale at the end of February compared to a year earlier. One of the reasons for lower inventory is severe weather in much of the country. But I think the biggest contributing factor is the surge in home sales in 2020. In Charleston alone, home sales were up 19% from 2019. Sellers noticed the price appreciation and low interest rates and took advantage of it.
In Charleston, as of March 6th, we have 1,713 homes currently active in the Charleston Trident Multiple Listing Service. Last year, a banner year for home sales, 22,144 homes sold, which means on average, 1,845 homes sold every month. Noticeably, we have less than one month of inventory to sell. If we average 2018 and 2019 home sales, which were closer to normal rates, we still have only about one month of inventory. A normal healthy market has six months of inventory available. The market is hot and is going to stay on fire!
Will we see another double digit price appreciation for 2021? CoreLogic is only predicting a 3.3% increase in home prices this year nationally. Affordability is one of the hurdles for many buyers. With enormous price appreciation, first time home buyers, which make up the largest percentage of home sales, may no longer be able to afford to buy a home. The other hurdle is the availability of homes to buy. With many city governments advocating for and enacting policies to hamper growth, along with the scarcity of available land in many areas, builders will not be able to keep up with the demand. This just means that economists are expecting fewer homes to be sold in 2021, which will slow price appreciation for the year.
So far, Charleston is not following this predicted trajectory. In the first two months of 2021, 3,093 homes have sold compared to 2,488 in the same two months of last year. This will definitely be a year to follow in real estate!
Graph: CoreLogic Home Price Insights report, March 2, 2021