Let’s first go back and review 2019. Compared to 2018 contract activity for re-sales started a little lower and then picked-up as the year progressed. Contract activity was “normal” in that activity peaked in April in May, and then decreased heading into the winter with a little bump in October. Overall, total volume was up over 7% in 2019 compared to 2018.
Now let’s take a look at rates. Interest rates for a 30 year fixed mortgage started at 4% in early 2018 and then drifted up to just under 5% by November. Then In 2019, rates headed down steadily to 3.7% by year end. As rates drifted down, contract activity headed up. And if we were working together during the second half of 2019, I’m sure I would have told you these amazing low rates would never get lower. That didn’t turn out to be a good prediction which we’ll see later.
Another very useful statistic to review the ‘median days on market’ that it takes for homes to go under contract. This may be the single best metric telling us if it’s a buyer or seller’s market. The overall pattern for 2018 and 2019 was typical for our market: Days on market were the lowest in the spring reflecting a very competitive market, and then homes took longer to sell in the fall in winter.
And lastly, and maybe the most important metric to buyers and sellers is pricing. In 2019 median home prices were flat the first two quarters, but then they headed up in the 2nd half of the year with lower rates and higher contract volume finishing at $455,000 for the year.
So to put this all together, our real estate market was coming into 2020 pretty strong. With low rates, 2020 would have been a good seller’s market without Covid. Now let’s take a look at what happened in 2020.
The year started off very strong with contract activity up almost 20% in January and February. We were hearing about Covid, but it didn’t impact us until mid March when everything shut down. At that time, none of us knew exactly what to do and when this would end. Understandably, many homeowners didn’t want strangers in their home, and many buyers paused their activity. As a result, contract activity plummeted 25% March through May. But then by June 2020 contract activity surpassed 2019 and we actually finished with 6% more resales for the entire year.
Many complex factors drove the market up. One of the most important factors was even lower interest rates. Rates were a bargain at the end of 2019, but somehow went even lower throughout 2020 to around 2.5% making a home purchase much more affordable. By the 2nd half of 2020, our real estate market had officially entered “crazy territory”. We see this reflected in the median days on market it took to sell a home. It blipped up a bit in April and May, but then pretty much flatlined through the year staying below 10 days. During this time, most homes would come on the market, multiple offers would be submitted, and then an owner would select the strongest buyer and with the best price and terms. That’s normally the exception in our market, but this became the norm.
And we see this reflected in home prices. The median home price jumped over 6% in a single year to $485,000.
Making predictions is often a fool's errand, but we will be keeping our eye on a few things.
Still it looks like 2021 will still be a seller’s market, but how much of a sellers’ market? It’s hard to say. One thing I’ll definitely keep an eye on is how quickly homes go under contract. If the median days on market trends up to 14 days and more, this will indicate a return to a more balanced market. But if it stays at 7-10 days or lower, then know that the current madness is still underway.