Commentary: A new year brings a new surge in housing prices – Press Herald

December 17, 2021 by No Comments

There’s been a discouraging development for renters who gave up on buying a house earlier this year because of dwindling inventory and rising prices, thinking they’d wait until things cooled off: The housing market is surging again. But why is it upshifting during what should be the slowest time of the year? One answer is rising prices in the rental market.

Leases that are coming up for renewal now were signed at the end of 2020, before rents exploded higher. That’s renewing interest in home buying, essentially pulling the 2022 spring homebuying season forward by several months. If there’s a silver lining for renters, it’s that the cycle might relieve some of the upward pressure on rents that we’ve seen for most of the year.

From May until September, we had a lot of evidence that the housing market was normalizing somewhat after a pandemic-fueled year of buying. The price of lumber fell by over 70 percent after setting an all-time high in early May. In July, mortgage applications hit their lowest level since the spring of 2020. In August, the National Association of Home Builders sentiment index hit its lowest level in a year. By the end of September, it was reasonable to think that the pandemic had pulled forward a lot of housing demand, but that high prices, supply chain constraints and a gradual return to pre-pandemic behavioral patterns were slowing bring normality back to the housing market.

That thesis is looking pretty shaky based on what we’ve seen since then. Mortgage purchase applications have picked up again; on a seasonally adjusted basis, the end of November was the strongest we’ve seen since February. Home-buying sentiment bounced back sharply since the dip in August, and is back at levels seen in April and May. Seemingly out of nowhere, lumber prices are surging again, doubling since the middle of November. Homebuilder stock prices are setting all-time highs. And inventory levels of homes for sale are plunging again.

Now think about what’s happened in the rental market over the past 18 months. At the onset of the pandemic, vacancy rates rose and rents fell because of a combination of people buying houses and, perhaps, moving in with family during the height of uncertainty before vaccines were available. Around the beginning of this year, apartment vacancy rates began falling and rents began normalizing – and then they skyrocketed as people flocked back to cities, with their incomes and balance sheets boosted by multiple rounds of fiscal stimulus and a robust job market.

Renters with the best timing signed their one-year leases toward the end of 2020 when rents were at their lowest point, locking …….



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