Home Topics Finance Seasonal swing continues to decline Q4 Housing Supply

Seasonal swing continues to decline Q4 Housing Supply

The real estate market usually follows fairly reliable seasonal trends, but 2020 won’t be known for following predictable patterns.

Each year, colder weather and the holidays come with a shift in property prices and the number of houses for sale. In the fourth quarter of 2020, some local markets had slightly lower list prices than the previous quarter. However, with no supply left, first-time buyers had even fewer options in major metropolitan areas and across the country due to the annual decline in supply.

In NerdWallet’s analysis of home affordability for first-time buyers in the fourth quarter of 2020, homes remained unaffordable in most of the 50 largest metropolitan areas, although list prices decreased only slightly compared to the previous quarter. And with only one exception – San Francisco – it just got harder to find homes compared to a year earlier. Taken together, these factors undoubtedly made it difficult for first-time buyers to benefit from it low mortgage ratesas they usually have tighter budgets than repeat buyers.

According to the National Association of Realtors, first-time buyers accounted for around 31% of sales in the fourth quarter, proving that some fight headwinds in the market and win.

A local drop in prices makes some metros more affordable

A very slight seasonal drop in prices in the fourth quarter made it more affordable in some metropolitan areas. Homes were listed at an average of 5 times the income of first time buyers among the 50 largest metropolitan areas, compared to 5.2 times their third quarter income.

Click here for the Q3 2020 First-Time Home Buyer Metro Affordability Report.

A price point three times your annual income is considered a good starting point for measurement How Much House Can You Afford?. For first-time buyers, this guide needs to be stretched frequently. When sellers can get a full list price (or more) like the current market, it can be especially difficult for lower annual income buyers to find homes that fit right on their monthly balance sheet.

As prices fell in some markets, homes became a little more affordable for some buyers in the fourth quarter. Four subway areas listed homes at 3.2 times the average first-time buyer income – St. Louis, Pittsburgh, Cleveland, and Buffalo, New York – making them the most affordable in this analysis, and all less than they were in the third quarter .

The least affordable subway areas for first-timers were unchanged from the previous quarter: Los Angeles, which listed homes with 12 times the median income of first-time buyers; San Diego (8.6); San Jose, California (7.7); San Francisco (7.2); and Sacramento, California (6.9).

Nationwide, properties were listed in the fourth quarter for 4.7 times the average first-time buyer income.

Click here for a table with affordability data for all 50 metros analyzed.

Instructions for first-time buyers: Winter is generally the cheapest time to buy a home (with a few exceptions). While starter homes may not be magically unreachable or reachable at this time of year, especially 2020-2021, the cold weather and holiday season may mean less competition and more motivated sellers. If buyers have greater leverage, now is the time to do so. Of course, the supply is also limited in these months, especially in the years 2020 to 2021, so that the harvest will be less. If pricing is your primary concern, then the end of the fourth quarter leading up to the first might be the best choice for your budget.

The sticker prices have decreased (very slightly) for the winter market cold

In general, high demand and limited supply lead to a price increase. And we saw that in the course of 2020. In many metropolitan areas, however, there was still a slight seasonal decline in the fourth quarter.

Of the 50 metros analyzed, 37 list prices either stayed the same or fell compared to the previous quarter. Four metro prices fell 10% or more from the third quarter: Buffalo, New York (-10%); Louisville, Kentucky (-12%); Cleveland (-13%); and Milwaukee (-15%).

Nationwide, list prices fell by only 1% from the third to the fourth quarter and by an average of 2% in the largest metropolitan areas.

Despite this slight seasonal relief, prices rose almost continuously in the fourth quarter of 2019. In just five metros, prices stayed the same year after year or fell by less than 1%.

Click here for a table with price changes compared to the previous year for all 50 metros analyzed.

Instructions for first-time buyers: List prices are generally a starting point for negotiation, but in a seller’s market, homes often achieve the asking price or more. If freshmen buy a house in 2021, they should be aware that their negotiating skills are limited. Not only are they more likely to pay the sticker price they see in their favorite home listing app, but they also have less power to negotiate contingent liabilities, such as car rental prices. B. the cost of necessary repairs. Be prepared to make some sacrifices to increase your chances of actually closing the house you want.

Inventory: how deep can it go?

Inventories are expected to narrow in winter from the fourth quarter onwards, but it wasn’t too far to fall in 2020. Inventories were shockingly low in 2020, but continued to decline, by 12% from the third quarter on average among the most populous metropolitan areas and by 13% nationally. In both areas, the number of active listings fell by 39% compared to the previous year.

Inventories decreased more than 50% year over year in six subway areas in the fourth quarter: Riverside, California (-55%); Salt Lake City (-53%); Providence, Rhode Island (-52%); Baltimore (-52%); Austin, Texas (-52%); and Memphis, Tennessee (-51%).

Click here to display a table with year-over-year inventory changes for all 50 metros analyzed.

Instructions for first-time buyers: With home supply dropping almost everywhere buyers look, the only way to deepen your pool of potential homes is to expand the search parameters. If you’re flexible with your destination area or city, your home functions, and what makes it onto your must-have list, you’ll improve your chances in this tight market. Flexibility in closing or moving-in dates can also give you an advantage. Renters can pay a penalty for this adaptability by breaking a lease, but becoming a homeowner could be well worth the cost. And for buyers who just can’t move, it may be less stressful to be satisfied until the market or their budget changes.

Why San Francisco Listings Up 6% in the Fourth Quarter of 2019

Seeing San Francisco – traditionally one of the most competitive markets in the country – as the only subway to see inventory spikes in the fourth quarter is surprising at first glance. However, the 6% year-over-year gain doesn’t tell the full story.

On closer inspection, the San Francisco rise can be explained by a single month, December. Compared to December 2019, listings were up 28% in 2020, a significant increase that affected the quarterly average (listings were down 4% in October and a modest 5% in November, the other two months of the quarter) back).

So what happened in December? Looking back over the past few years, the number of homes on the market in December in this particular metropolitan area was volatile. In December 2018, the active listings increased by a whopping 81% to around 4,600 compared to the previous year. In December 2019, they fell by a comparative 30% to around 3,200. While the 28% year-over-year increase in December 2020 seems like a remarkable jump on its own, the number of listings this month (roughly 4,100) is comfortably between the two previous December.

All of this to be said: even in San Francisco, inventory is limited. Given the high demand in this market and the fact that homes are listed there at 7.2 times the first time home buyer income, new San Francisco buyers will have to stop working for them.

METHODOLOGY

The monthly average list price and the number of lists are taken from Realtor.com’s monthly inventory data Residential property listing database As of January 2021. Nominal list prices have been adjusted to December 2020 dollars using the US Bureau of Labor Statistics consumer price index. All monthly median values ​​have been compiled into quarterly averages.

When comparing new quarterly data with affordability data from the previous quarter, we used numbers that have been adjusted to reflect the period in which they were first analyzed. For example, list prices and income in the third quarter were not adjusted to the fourth quarter when comparing changes from the previous quarter. This was done for consistency between the previous and current reports.

The average age of first-time home buyers is 33, according to the National Association of Realtors’ 2020 profile for home buyers and sellers. The estimated income for first time home buyers was derived from the 2019 U.S. Census median household income for the median household income of households aged 25 to 44 – the range likely to encompass the largest number of first time home buyers – and escalated with the help of the bureau on December 2020 dollars of the employment cost index of labor statistics.

San Juan, Puerto Rico, is one of the 50 most populous metropolitan areas, but was excluded from the analysis due to insufficient inventory data.

Interpret the subway ranking with caution. There may be overlap in affordability rates due to error rates in income data and rounding.

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