Your guide to waiting out the wild housing market

How crazy is the property market at the moment? So bizarre, in less than a week, half of the homes posted countrywide in April went under contract. So bizarre, a survey revealed that the majority of purchasers acknowledged placing bids on houses they had never visited. So crazy, that a Bethesda, Maryland resident recently pledged to name her first-born kid after the seller in her written offer, according to the CEO of real estate website Redfin. She was too crazy and didn't get the house.

Pick any random housing statistic, and chances are good that it's breaking previous records. high record prices for homes. Lowest inventory ever. Record-high percentage of properties selling for more than their asking price. Record-low average time on the market.

Nobody seems to know with prices shooting to the moon and listings appearing and disappearing like quantum particles when this will end. Bill McBride, a noted economist who correctly forecast the 2007 housing meltdown, says he has "seen bubbles and busts" in his years monitoring the property sector. I've never seen something quite like this, though. It's the ideal storm.

So what is happening here? The long and short answer of it always boils down to economics: supply and demand. 

Demographics are the massive, invisible motor powering the machine on the demand side. The largest generation in American history is the millennials. Many of them are now rushing into the housing market after being too financially constricted to purchase homes at a typical rate in the previous ten years. After the coronavirus pandemic forced the closure of much of the world for more than a year and caused an epidemic of mind-numbing cabin fever, some people may feel a pressing need to leave their current apartment, basement, or home. The fact that homebuyers are flush with cash following a year in which the national savings rate surged to its highest level in decades makes things even stranger. In addition to all of that, borrowing rates recently reached new lows after essentially declining for the majority of the previous 40 years, drawing more buyers to the market and stimulating greater offers.

More broadly, the pandemic changed the U.S. migratory landscape, and many families—particularly many high-income families with occupations that allow them to work from anywhere—are searching for sunny, spacious real estate and driving up costs wherever they arrive. In Florida, Texas, and Idaho, just under half the buyers are coming from out of state. People turn a fairly frenetic property market into a once-in-history, hair-on-fire, what-the-hell-is-happening bonanza when they abandon multimillion dollar homes in expensive states like Los Angeles to spend $1 million on a house that was worth $500,000 a year ago.

Issues with supply are equally significant. Low inventory is the result of years of inadequate building and the pause in operations during the pandemic. Millions of properties are being kept off the market as seniors who in earlier decades sold their homes to downsize are now more inclined to "age in place." Additionally, some builders are delaying their projects due to the abrupt tripling of lumber prices.

Although it took years to develop, the 2021 housing boom feels just as abrupt and shocking as the pandemic. Strong housing demand in the early 2020s was totally predicted thanks to the 1980s' birth of the sizable Millennial generation. The construction sector was severely impacted by the Great Recession, making the current housing crisis equally predictable. Indeed, economics author McBride could have predicted all of this from a mile ago. So, I questioned him: Does he anticipate a climb, a drop, or a plateau coming next?

In the foreseeable future, it's not at all evident that the market is going to slow down much. In 2005, the booming market eventually cooled off and that the subsequent downturn was an unpleasant experience for many. I don't feel that way at all now because the fundamentals are all present. Because Millennials need homes, demand will be high for a while. With the low amount of available houses, prices will continue to rise for some time.

The only places where there could be a bubble bursting are regions where urban people rushed to purchase a second house, only for the urban core to swiftly get immunized and return to normal in 2021. Second-home communities, such as small towns in New England and other beach towns on the East Coast, may experience some price decreases. However, even there, there may be a change as more people choose to keep their second homes instead of selling it for a new one.

The available inventory is the major indicator of where real estate prices would be in one month. It's impossible to exactly gauge housing demand. It's much easier to research available inventory. The sudden increase in active inventory for three weeks in a row after hitting an all-time low in April is great news. The bad news is that, given present trends, it will take approximately 14 months for the nationwide inventory of homes for sale to return to normal levels.

However, increasing inventories is just one of many indicators that the market is about to experience absurd levels of prices. The proportion of homes that must lower their price in order to sell is now beginning to increase after a record decline. Even with timber prices skyrocketing, housing starts are back at their highest levels since before the Great Recession. Buyers just need to be a little patient because there are a lot of new homes being built even though there aren't many properties currently on the market.

Let's imagine you are a couple looking to purchase a property in your 30s or so. Your keep sifting through Zillow pages, and you spend your free time browsing Redfin. Despite making numerous offers and promising sellers everything but a shrine to their ancestors, you continue to lose out. Do you increase your maximum price in the hope that things will only become crazier over time, recommit to the Zillow chase, and remove the offspring shrine?

If you’re in a market where you consistently have to spend significantly above listing, don't buy right now. When you put everything together, the odds are that things get more normal in a year.

Relationships are more important than a house.

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