Prior to the pandemic, real estate activity followed predictable seasonal patterns. The market would pick up in the spring and summer months as buyers looked to close on new purchases before the beginning of the school year, and activity would subsequently cool down in fall and winter.
But a major uptick in purchases in late 2020 and seemingly endless supply chain challenges have led to a tightening of housing inventory in cities across the country. Fierce competition, fluctuating rates, and price appreciation are just a few symptoms of limited housing options: Buyers are acting quickly, no matter the time of year, making it difficult to plan for the long-term.
Borrower Habits Point to Preservation Amid Decline of the Seasonal Market
NJ Lenders’ Steve Grossman joined Charlie Oppler, President of NAR and CEO of Prominent Properties Sotheby’s International Realty; and Dr. Lawrence Yun, Chief Economist at NAR, to speak on seasonality and the real estate market.
“Do you think the seasonality of residential real estate, such as the ‘spring market’, may not exist like it used to and now real estate is going to transact all year round?” Mr. Grossman asked.
“People have always wanted to time their home purchase before the school year- which is why we had spring buyers closing in the summer,” said Dr. Yun. “With greater options of not commuting to an office, the school choices are more flexible, so we may have less of the pronounced seasonality going forward.”
Danielle Hale, chief economist with Realtor.com, expressed a similar sentiment in a recent interview.
“A lot of seasonality has to do with the way people make decisions for their families, with buyer demand shaped by the school year and sellers responding,” Ms. Hale said. “We tend to see more family-oriented selling in the spring, with some markets more seasonally affected than others.”
Inventory Shortages Challenge Viability of a Seasonal Market
The greatest obstacle to a return to seasonal patterns is the nationwide housing shortage as home construction is failing to keep pace with demand from new buyers.
“We have a historically low inventory,” Dr. Yun says. “Once a building is completed, there are buyers. Once buyers see if they qualify or not, they are immediately jumping in.”
“Supply of resale properties is also low,” Dr. Yun added, “Sellers are concerned about their own ability to find suitable new homes upon parting with their old ones.”
Borrower Traffic Driven More By Interest Rates Than Time-Of-Year
Interest rates have proven to drive buyer traffic more than seasonality.
“Fannie Mae asked borrowers a simple question, ‘is it a good time to buy?’” Dr. Yun said, “What people say and what people do- they do not necessarily line up.”
“According to the survey, during the same months in 2019 and 2020, people were feeling the same about home buying,” said Dr. Yun. “But we know that in 2020, home sales boomed because the timing was right.”
In a recent interview with Forbes, Dr. Yun commented on the effect of current market conditions on borrower demand.
“Total existing-home sales dropped 5.9% from September to October, marking the ninth consecutive month of declining sales, as home shoppers were squeezed out of qualifying for a mortgage,” said Dr. Yun.
Good news for those hoping for a return to a seasonal market:
“Mortgage rates have come down since peaking in mid-November, so home sales may be close to reaching the bottom in the current housing cycle,” said Dr. Yun.
Closing Thoughts
As borrowers’ ability to plan ahead remains questionable, the spring market may still bring an influx of competition. Remaining a step ahead of those waiting out the school year may prove to remain a successful tactic amid inventory shortages. Speak to your trusted loan officer about your options today.