I was inspired to write this blog post after reading a great article from the Atlantic called, "Why You Should Wait Out the Wild Housing Market", written by Derek Thompson featuring information and opinions from Bill McBride, an economic writer who predicted the 2007 housing crash.

In the article, McBride is quoted to have said of the 20/21 housing market, "In my time studying housing markets, I’ve seen bubbles and I’ve seen busts, but I’ve never seen anything quite like this. It’s a perfect storm." And while the article is titled, "Why You Should Wait Out the Wild Housing Market", when questioned about said future, McBride does not believe that demand will fade anytime soon.

The article gives explanation of supply and demand and the different ways they've impacted the current real estate market. Millennials (as the largest generation in history), the article claims, are a big part of why inventory is currently so low. Thompson says, "Having been too financially constrained to buy houses at a normal rate in the previous decade, many of them are now storming into the housing market." This 2019 study (https://onlinelibrary.wiley.com/doi/10.1111/jors.12445) on young adult migration patterns shows us that the millennial generation has been migrating to cities far more than any other generation before it. It certainly doesn't help that when Covid-19 hit, it brought a chunk of those potential buyers into the mix, in addition to the aforementioned first time homebuyers already in the market.

Thompson quotes a Toll Brothers executive who says of the hot Texas, Florida and Idaho markets, "We've never seen migration like this, just shy of half the buyers are coming from out of state". Thompson comments, "When people leave multimillion-dollar houses in, say, Los Angeles to plunk down $1 million on a house that was worth $500,000 a year ago, they turn a merely frenzied housing market into a once-in-history, hair-on-fire, what-the-hell-is-happening bonanza."

He mentions a few other contributors to the intense market:

1. People have extra cash from the various stimuluses that have gone out.

2. Interest rates are at all time lows.

Currently, demand far outweighs supply, and supply is low for several reasons. 

1. The loss of builders after the 2008 crash who never recovered and thus contributed to a sharp decrease in the construction of new homes.

2. Thompson cites older people staying in their homes instead of downsizing as a contributor.

3. Young people are staying in starter homes for longer.

4. The high cost of new construction has been an issue as well.

McBride has apparently seen all of this "coming from a mile away", with the emergence of the giant millennial generation in the 1980's and the great recession's "clobbering of the construction industry".

His prediction for the future?

“It’s not clear at all to me that things are going to slow down significantly in the near future. In 2005, I had a strong sense that the hot market would turn and that, when it turned, things would get very ugly. Today, I don’t have that sense at all, because all of the fundamentals are there. Demand will be high for a while, because Millennials need houses. Prices will keep rising for a while, because inventory is so low…. We might see some price declines in the second-home areas, like small towns in New England and other beach towns on the East Coast. But even there, we just might see a shift where more people decide that they like owning second homes.”

McBride says the key metric for understanding where the market will go is inventory. "It's hard to precisely measure housing demand," (although people immersed in the real estate industry should be able to give you an idea.) "It's much easier to study available inventory." What we know about current demand in our local market of Rhode Island and Bristol County, MA is that it's very much there and does not seem to be going anywhere. However, it is not quite as strong as it was 6 months ago. We are seeing less offers being made and more outrageously priced houses sitting on the market and needing to undergo price decreases before selling. Homes that are well-marketed and not over-priced are absolutely still selling in a matter of days - sometimes a matter of hours - but many of the buyers who were willing to take whatever they could get their hands on have already purchased a home, and a good amount of the mass of buyers who were not in as much of a rush decided to pause their search. What you have left is a pool of buyers who are not on a timeline and can wait longer to find the right home - causing unappealing homes to sell more slowly and great properties to continue to sell above asking with multiple offers (maybe 2-6 per house instead of 6-12). This is what is currently going on and we don't foresee it changing in the next few months.

Below is a list of data from the Rhode Island MLS showing single family home inventory by month for the last 5 years. As you can see, inventory is currently not increasing by much, month over month. We ranged from 1300-2600 during 2021. This is drastically different from the previous 5 years, as you already know, but it is also different from 2020 when this all started. Some months this year have even had more than HALF the inventory that they had in 2020. This speaks volumes as to why the market was even more difficult to navigate in 2021 than in 2020, and had a vast amount of buyers throwing in the towel.

What we can hope for the near future, however, is that those who held off on selling their home in the past two years will be ready to sell this year, as we have more knowledge of Covid-19, and as more people begin to feel comfortable to navigate the world normally. For now, we'll continue to watch the figures and report our experience with market activity back to you.