Image courtesy of Lamacchia Realty
As the pandemic hit in March of 2020, many feared that we’d see a housing crisis akin to what we saw in 2008 with crashing prices and inventory bursting through the roof.
Buyers, sellers and, frankly, Realtors will tell you that the exact opposite is what has come to pass. A housing crisis would slow everything down, prices would drop as values diminished with every lingering home on the market; homeowners would eventually be upside down on their mortgages, and we’d see a spike in short sales and foreclosures.
The reality is that homes are selling faster than ever, some in off-market sales before they are even listed, as buyers have had to get creative with finding new ways to get offers accepted. Open houses are swarmed with buyers – all who eventually end up competing for the home by outbidding one another and driving prices up.
The real estate market defied the pandemic by becoming more fast–paced and chaotic than ever, creating the 2020 version of a historic time for the real estate industry. And this story isn’t unique to Massachusetts: It’s happening nationwide.
Sales are up by 1 percent, which by itself is an unimpressive number. However, since sales dropped so significantly in March, April and May of 2020, it proves to be just the opposite. With decreases deep enough to incite the lowest inventory on record and then catch up enough to beat out 2019, this is where the market’s defiance of expectations is best illustrated. 2020 ended with 92,796 homes sold over 2019, which had 91,926 sales. Single families carried the torch, as sales of condominiums and two- and three-family homes decreased. Communal living wasn’t what people wanted for a while, though that trend is dissipating with vaccines and safe living practices.
Prices were up every month in 2020 over their counterparts in 2019. Again, a crisis would have exhibited decreasing prices as values dropped, but that is clearly not the case with annual prices increasing by 8.8 percent. 2019’s average sale price for all single family, condo and two- and three-family properties was $459,638 and all three categories increased in 2020 bringing the average sale price to $499,949. That’s a $40,311 jump year–over–year.
Supply Out-Absorbed by Demand
Historically low inventory is still the name of the game as we enter 2021, but it has been the case since the beginning of 2020 and especially since summer. As soon as sellers began to feel reassured by safe showing protocols, they started to resume their plans of listing in summer after delaying due to the shutdown. This is what caused sales to drop from March to May, but when buyers were finally given some inventory to consume in June, the frenzy began.
The historically low mortgage rates helped buyers with some additional purchase power to offset the increasing prices due to bidding wars, and homes started selling faster than ever. Homes sold so fast that the supply of homes for sale was lower than ever, despite the fact that the number of homes listed was only down by 5.5 percent. There were still 100,103 homes listed in 2020 compared to 105,954 in 2019.
This is proven by the increasing number of pending home sales. Fewer homes listed and more homes placed under contract means that supply was being out-absorbed by demand and inventory couldn’t keep up with the number of buyers. Pending sales were up by 0.6 percent – 90,058 homes were placed under contract in 2020 over the 89,561 that went under contract in 2019.
This phenomenon is what’s known as absorption rate. If Massachusetts hypothetically had 12,000 homes for sale and 3,000 of them sold in one month, that would be a four month’s supply (25 percent absorption rate) – which tends to be the average. May through August of 2020 had an average 100 percent absorption rate, and all of 2020 had an average 82 percent absorption rate, higher than ever.
Anthony Lamacchia
What’s Next for Real Estate?
2021 is only going to see an extension of this trend of anemic supply if sellers continue to hold off on listing. I see reason to believe, though, that sellers will get back into the game come spring and start adding to inventory levels. Buyers will see slight reprieve from the competition, but they’re still going to have to be prepared for bidding wars by working with experienced Realtors. Off–market sales may increase year over year as sellers look to find buyers who will close on their terms, ultimately giving them more time to find a home to move into and buyers work with Realtors who have access to homes that aren’t listed yet.
Loan limits have increased and with mortgage rates still low, buying a home is still affordable for buyers despite the rising prices. If sellers list their homes and price them well, selling is easy. Sellers who want to sell for the most money this year should list soon before all the other sellers decide to do the same come spring.
Anthony Lamacchia is the broker/owner of Lamacchia Realty.
