Home prices have seen a large increase over the last several months, driven largely by low interest rates and limited inventory.
According to Zillow, the year over year median home sales price in Bellingham increased by more than 10.9% to $514,000. More houses are getting multiple offers and selling over list price.
The Big Factors Right Now are Interest Rates and Inventory.
First, interest rates.
30-year fixed mortgage rates have increased from a low of 2.67% in December of 2020 to now around 3.1%. In recent weeks there has been a steeper climb than before due to a strengthening economy and inflation fears.
Despite the increase, historically speaking interest rates are still very low. Historically speaking, interest rates below 4% are considered low.
The Federal Reserve has signaled it will continue to introduce money into the US economy through quantitative easing.
This is when the Fed buys hundreds of billions of dollars’ worth of Treasury bonds and mortgage-backed securities. The additional injection impacts long term interest rates. This approach is expected to continue through the rest of 2021.
Of course, if inflation begins to rise too quickly above 2% this policy will change, and rates would reverse direction.
The Second Piece of the Equation is Supply.
Right now, there is a severe or extreme shortage of homes in the $250,000 to $750,000 range. For homes in this range, there is less than one month of inventory. Several homes go pending in just a few days.
There are several contributing factors to this issue. First, the pandemic has changed work for many people. A National Bureau of Economic Research paper published in June estimated 38% of jobs can be performed remotely. At the onset of the pandemic, individuals in various types of work were moved from their traditional office to their home offices. Several companies have since made that move permanent.
Because they no longer must live where they work, they can choose where they want to live and they are finding Whatcom County to be an attractive location. A larger number of people are moving to Whatcom and Skagit Counties from Texas, California, and the Seattle area.
We are also seeing more people who were once on the edge about buying a home, jump into the market; some of these people are first-time homebuyers or in other cases they are buying second homes (and renting out their starter home), both of whom add considerable pressure to the market since they are not putting up a home for sale as they take another one off the market.
Moreover, many people are choosing to refinance their mortgage at the new, lower rates rather than deal with trying to find a new home in such a competitive environment. Furthermore, home builders are not building enough homes to keep up with demand.
We expect to see a competitive housing market for the rest of the buying season going into the fall.