Thursday, December 2, 2021

Buyers, and Sellers and Homes, Oh My!

Ask the CFP

“Always be a first-rate version of yourself, instead of a second-rate version of somebody else.” ~ Judy Garland


Question: What are your thoughts on the supersized demand for real estate in our area right now? 

Answer: In essence this is the perfect storm with historically low mortgage rates, the work-from-home (WFH) phenomenon and demographic trends creating insatiable housing demand. Home sales hit a 14-year high in 2020, according to the National Association of Realtors, which shows that the Federal Reserve’s rate cut is having the desired effect for the economy. However, the imbalance of buyers to sellers has led to price increases and fierce competition that reminds some of the housing bubble in the mid-2000’s.



Demand and demographic issues could fuel this boom for some time. First-term homebuyers only add to the demand side of the equation in a market where supply remains stubbornly low, with a deficit in 29 states, as reported by mortgage buyer Freddie Mac. Low rates and millennials coming of age are expected to keep the pressure on the supply/demand dilemma leading to supersized demand, especially in certain markets such as South West Florida.

Bidding war blues 

Submitted Photo

It’s evident when we speak with clients that homebuyer frustration is real. An example from outside our area proves this point. One 24-year-old software developer spent months on the hunt for a starter home in Denver. He told USA Today he was outbid eight times, and his parents agreed to loan him money to boost his chances in a bidding war. In the end, he paused his search and moved in with his parents to save up for a larger down payment. He represents a trend that has led to a majority of 18- to 29-year-olds living with their parents since the Great Depression. Low rates and millennials coming of age are expected to keep the pressure on the supply/demand dilemma leading to supersized demand, especially in certain markets such as South West Florida, adding another layer of pent-up need and demand. 

Purchases of second homes in our area is also pushing demand. Cash buyers tend to be favored with more clients forgoing financing to seal the deal, and then mortgaging it later. Half of the home sales handled by U.S. Redfin agents have faced bidding wars over the past eight months, the real estate brokerage reported. Normally such a hot market would call forth supply as owners seize the moment to sell, but the pandemic has slowed things down – creating an ideal situation for homebuilders.

Building our way up 

The Census Bureau reported that 811,000 new homes were sold in 2020, up 18.8% from the prior year, thanks in part to the Fed’s pledge to keep rates near zero. The 30-year fixed mortgage rate dipped to a record low 2.65% in January 2021. This boosted buying power and allowed people to stretch their budgets to buy more expensive homes. A 1% decrease in the interest rate equals more than $30,000 saved on a 30-year mortgage for a $200,000 home.

Homebuilders seem up to the task of helping to lead the economic rebound. In December, single-family homebuilding, the largest share of the housing market, jumped 12% to 1.3 million units, government figures show. That translates into economic growth. Building 1,000 single-family homes creates around 2,900 full-time jobs and generates $110 million in taxes and fees, according to the National Association of Home Builders’ (NAHB) National Impact of Home Building and Remodeling report.

A “cycle born anew”

The WFH phenomenon along with demographic trends support a strong housing market. The bulk of the nation’s largest generation – millennials – turned 30 in 2020, the time of life when many people buy their first homes. These two pillars continue to support increased housing activity. Other factors powering the trend are social shifts (de-urbanization, de-densification, Sun Belt migration) that add momentum. 

It’s not all tailwinds for housing, however. The Urban Institute’s housing credit availability index hit a low in 2020, meaning borrowers with less than perfect credit are having trouble getting a mortgage. Also, the pandemic has only brightened the appeal of aging in place for seniors, which is part of the reason for the subdued housing supply. Boomers staying put accounted for millions of homes held off the market in 2018 by some estimates.

All of this means that the American dream of owning a home, a primary method of building financial security, remains out of reach for some despite record-low rates, yet sales continue to surge. As one friend said, the billionaires are pushing the millionaires out of the market. Stay focused and plan accordingly. 

The opinions expressed are those of the writer as of May 3, 2021 but not necessarily those of Raymond James and Associates, and subject to change at any time. Information contained in this report was received from sources believed to be reliable, but accuracy is not guaranteed. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Real estate investments can be subject to different and greater risks than more diversified investments. Declines in the value of real estate, economic conditions, property taxes, tax laws and interest rates all present potential risks to real estate investments. Past performance does not guarantee future results.

“Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.” 

This article provided by Darcie Guerin, CFP®, First Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. She may be reached at (239)389-1041, email Website:



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