With such low inventory and an abundance of buyers, many are wondering how much longer the current real estate market can sustain itself but no one truly knows.
There are several factors that the Madison County area’s Realtors attribute to the current market – the first being low interest rates. Mississippi Realtors Central District Vice President Amanda Polles said interest rates are extremely low, and people are taking advantage of roughly a 2.5 percent interest rate to get equity out of their current house and roll it over to a new home – giving them nearly the same payment amount as their old house.
William Fincher, a Realtor in Madison County, said that money is cheap right now, and people are spending their money on buying a house, even if the prices are much higher than they were two years ago.
“Obviously, the low interest rates have been a huge driving factor of the housing market,” Fincher said.
However, there is more to the market than low interest rates. Polles said the pandemic was a big driving factor in this current climate.
“I feel like a lot of people during COVID-19 and the lockdown were experiencing just needing a different change of scenery – whether that looked like a new neighborhood with children to play with or remodeling,” Polles said. “When people stay in the four walls of their house, they get tired of looking at a kitchen countertop that they’ve been begging their husband or wife to change.”
Due to this, a lot of people decided it was time for them to move. However, on the other end, Polles said many other people decided to stay put due to the pandemic. This caused an issue where there are lots of people looking to buy and not enough houses to purchase.
“We have an inventory shortage and crisis, and I think there are several factors that play into why we are in the predicament that we are in,” Polles said. “I think a lot of the inventory was shut down because a lot of people chose not to move during this time. They stayed put so when something came on the market, there’s just so many buyers and not enough houses available because people had nowhere to go.”
While typically there would be more options due to new construction, a lot of people have moved away from this because of prices of construction being too high due to COVID-19.
“New construction slowed down due to inventory and materials skyrocketing and just depletion of supply,” Polles said. “I just feel like new construction took a loss and, obviously, prices skyrocketed because of those conditions so a lot of people couldn’t afford that. It made the existing inventory very much appealing.”
Fincher said the pandemic has elevated the cost of construction for wood mills, metal, copper and more because companies can’t get laborers, which affects the entire supply chain.
“The builders are passing along to the consumer the inflated prices of construction,” Fincher said. “They’re not going to lower their prices, so they’re just going to make the prices of the lots more expensive.”
Fincher said it is the old game of supply and demand that is happening right now with sellers and buyers. Sellers recognize the value of their home in limited inventory, which drives the price up, and buyers are still purchasing the homes.
“People are paying so much more for houses than they did a year and half to two years ago,” Fincher said. “They are paying $40,000 to $50,000 more than what they had historically and that concerns me.”
In Madison County from Dec. 5, 2020 to Jan. 5, 2021, there were 441 houses available for sale. This year, in the same time period, there were 97. There were 101 houses sold this year in that month, which was 49 less than the previous year. However, the average price of the house sold has risen from $347,522 to $388,082.
The same is true in Hinds County as well where there were 609 houses for sale from Dec. 5, 2020 to Jan. 5, 2021, and only 84 houses for sale in that same month this year. But, again, the price of the average house bought in that month has skyrocketed from what it was last year. Last year, the average price was $162,000. This past month, it was $211,262.
Fincher said this is concerning to him because, if a young family goes to purchase a home, they are paying $40,000 over the typical cost of what the house is actually worth.
“If they don’t plan on staying there for ten years or so, then they’re not going to get their money back and are going to be upside down in it,” Fincher said. “Something has got to happen. There is going to be a correction period in the market because there always is.”
Fincher said as much as he doesn’t want this to happen, he is anticipating another recession in the housing market. He said he has handled foreclosed properties for eight to ten different banks in the area for the past six to seven years since the last recession, and it has made up 60 percent of his business.
“It is all real estate business, and I think that is going to happen again at some point in time,” Fincher said. “It could be 12 months or 36 months – it just depends on how the feds regulate all the inflation.”
He said that, while it is concerning, it is also good business for some Realtors while others are struggling with the inventory shortage.
“It is an unprecedented time in this business right now,” Fincher said. “You talk to some Realtors in the residential business that are having the best year they’ve had and then you talk to others that can’t find anything for their clients to buy. We are seeing bidding wars like I’ve never seen before on properties and houses.”
Neither Fincher nor Polles said they have any idea when the market trends will change.
“I hope that it trends the same way for as long as it can,” Fincher said. “If they start raising interest rates like it’s predicted they’re going to do in 2022, then we will see a slow down of sorts in the current market trend. The people that have money are still going to be buying houses, but my fear is another 2010. I don’t think it will be another housing collapse, but I think you’re going to have some people upside down if they decide to sell it after spending 30 percent more than what the house is actually worth. But people are paying ridiculous prices right now. It’s nuts.”
Polles said as far as what the future holds, she doesn’t see anything changing in the near future.
“I wish I had a crystal ball, but I just don’t see it changing anytime soon,” Polles said. “I hope it does, because I have a lot of buyers that would sure love to move. I just don’t see it changing anytime soon.”
She said it is definitely “unnavigated waters” at this time and not the market to sell on your own, but a time when experience and knowledge is necessary.
“I’m thankful for the good business, and we just are going to ride along with it as long as the bubble doesn’t burst but, to me, something will have to happen sometime,” Fincher said.