Have 2021 Homebuyers and Sellers Missed the Boat?
Have 2021 Homebuyers and sellers missed the boat? The fast answer to this question is—NO!
The Real Estate Market Doesn’t Have to Follow the Seasons of Nature
It’s true that real estate every year tends to mimic the four seasons of nature. In the spring, there is an awakening of homebuyers that occurs followed by early summer and increased buying and selling activity. As summer begins to end, there is a slowing down period through fall and a time of perceived dormancy or slow activity during the winter.
But the advantage of being a homeowner is that you aren’t tied to seasonal activity. As a home seller, you only need one ready, willing, and able buyer to purchase your home. And in any market—dormant, increasing, peaking, or declining—there is a buyer for your home. This is because a home seller can adjust to the current market through pricing or conditional improvements.
As a homebuyer, it can be challenging when there is such high buyer demand, but if you stay ready for any new listing that hits the market, especially right now when inventory is beginning to build, you should be able to find that perfect next home! Especially with continued record low mortgage rates! Many homebuyers find their perfect home during the slower time of the year when there is less competition from other homebuyers on the streets.
The Economic Cycle of Real Estate
The four stages of an economic real estate cycle typically stretch over a 10-year period.
- Recovery
The early stage of Recovery is the first upturn in market activity by buyers and sellers. This period is where you would likely see a market that favors buyers over sellers. Mortgage interest rates would likely be higher than at the peak of the cycle. In real time terms, the last period that the real estate economy was in recovery was after the mortgage economic crisis of 2008.
- Expansion
The second stage of Expansion is the period that gives homebuyers and sellers the most confidence. The height of Expansion tends to benefit sellers over homebuyers and lower mortgage interest rates can add fuel to buyer activity as we saw in 2018 and 2019.
- Over Supply (Or in 2020’s case renamed Pandemic Period)
The third stage is referred to as Over Supply and occurs after the economic Expansion cycle peaks and begins to slowdown. Our market began to see this in late 2019 and the first 3 months of 2020 just prior to Covid-19. January and February of 2020 were beginning to see a large influx of listings entering the market. Once Covid-19 arrived in early March 2020, it was like a river reversed course.
The Central Iowa real estate market experienced a tsunami-like wave of homebuyers and sellers that felt just like the expansion period that had started in 2018. Even with home inventory levels dropping to record lows and fully in a national pandemic, homes sales continued at a rate that pushed 2020 year-end unit sales to record highs.
Due to the pandemic, 2021 acted like 2019 and as a result effectively resetting its place in the cycle back to the peak. This was accentuated by record low mortgage interest rates and record high buyer demand. Sellers enjoyed multiple offers often above the listed price of their homes within hours of going live on the market.
- Recession
If you were doing the math earlier, you’ll remember that I said that a typical real estate cycle occurs over the course of a 10-year period. We are 14 years into this current cycle and just now seeing indications that we are inching toward the Recession period. At the current activity level of home buyers, it could take 3 to possibly 5 years before we should expect to fully bottom out and begin the Recovery portion of the cycle again making this real estate cycle one of the longest in history.
In Closing
The title of this article was “Have 2021 Homebuyers and Sellers Missed the Boat?” and it’s important to understand that each year, the real estate market follows calendar seasons. But the market is also on a larger and longer cycle that is typically 10 years in length. This current economic real estate cycle will be at least 16 years and possibly longer. Regardless of where we are on the calendar or in an economic cycle, a home that is well priced and in top condition will always have a buyer and buyers that keep focused on the housing inventory will be able to find that perfect next home!