Hot Housing Market is Attracting New Participants: Sellers

Inventory ticks up as prices continue to rise

Aug 15, 2021

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Home for sale in Bangor, ME. For listing click here. Photo © Ben Sprague 2021.

Hot Housing Market is Attracting New Participants: Sellers

Home prices in the United States continue to surge. In the second quarter of 2021, the median home price was $357,900, a jump of 23% from one year earlier. The rise is the fastest on record. According to the National Association of Realtors, 94% of the 183 U.S. metro areas for which there are data have experienced double-digit percentage growth over the last year.

Here in Maine, home prices rose in the second quarter by 24.5%. According to the Maine Association of Realtors, homes are currently on the market for an average of just six days, an extraordinarily short period of time. Every single county in Maine saw double-digit increases in prices ranging from an increase of 10.9% in Piscataquis County to 39.6% in Waldo County.

The frenzied housing market has been driven by robust demand among buyers and historically low-interest rates, which have made it easier for buyers to afford larger and more expensive homes (see article from 8/1 on this topic here). But as the housing boom continues on, there is evidence of new participants entering the market: sellers.

Aaron Bolster, Broker/Owner of Allied Realty in Skowhegan and 2021 President of the Maine Association of Realtors, said recently in a press release:

Statewide, beginning in June of 2020, single-family for-sale inventory declined monthly for nine consecutive months through March of 2021, where it reached its low point. For the third straight month, we’ve seen improving for-sale supply metrics. Active single-family listings were up 18.5 percent during June 2021 compared to May 2021, and up 55 percent from the March 2021 low.

In other words, inventory is picking up. Some of this is seasonal as the months of spring and early summer are a common time to list a home, but much of it is due to the fact that extraordinarily high prices have loosened up potential sellers who might have otherwise been reluctant to sell.

I spoke with Lisa Liberatore this week, who is a real estate agent with Next Home Experience in Bangor. She told me she is starting to see some sellers come to the market just because they see opportunity with prices being so high. “This is the time to test it. And that’s what some people are starting to do,” Lisa told me, also noting that she is seeing a common trait across a lot of new sellers, which is that they are selling their second homes, such as a rental property or camp, to take advantage of the high prices, and not necessarily their primary residences. Lisa also noted that the rental market itself is so tight that even if a person wants to sell their house and rent for awhile before buying a new property, it is really hard to find a place to rent these days (a topic for a future article), so some people are holding off on listing their homes even if they want to sell.

Danielle Liscomb, a real estate agent with Better Homes and Gardens here in Bangor, has observed the same thing, telling me earlier this week, “The biggest downfall for people who want to sell is that they have nowhere to go. A lot of people are hesitant to sell their primary residences because of this. But if people have other arrangements or are selling a second property, we are starting to see some of those people come forward and that is helping inventory a bit.”

Danielle also noted that she has worked with several buyers recently who are selling just because they are realizing they can get so much out of their homes and then they are taking their cash proceeds and investing it into pricier homes and making larger-than-normal down payments. In other words, some homeowners are realizing they can bank a sizable profit by selling, and then they are using that money to leverage their way into larger homes.

Regardless of motivation, the numbers show that more houses have come onto the market in the last several months after a prolonged period of tightened and declining inventory. While prices continue to rise, the increased inventory at least provides buyers with additional options and might help ease the overall frenzy if inventory levels can continue their positive trajectory. To frame it with a principle of economics, if demand is strong but supply increases, prices should ease (although given how strong demand is right now, the “easing” might just mean that the rate of the increase in prices slows a bit rather than there being an actual decline in home prices).

New Housing Starts

There may be a glimmer of hope for first-time homebuyers or people who want to sell their homes but have nowhere to go: more homes are being built. In the second quarter of 2021, there were over 1.55 million new housing starts on an annualized seasonally-adjusted basis. By comparison, there were 1.29 million new housing starts in 2019 and 1.38 million in 2020. As prices have surged, waves of homebuilders and construction contractors have sought building permits, purchased up materials and supplies, and are getting shovels in the ground. I can attest to this in my work as a commercial lender as rarely a day goes by when I do not speak to a homebuilder who wants the bank to finance their latest project. What I am also observing is construction contractors who might have formerly specialized in one aspect of a house project like roofing, for example, are now signing contracts to build full homes and subbing out the activities they can’t or don’t want to execute themselves. There is just so much demand for new home construction right now.

With that in mind, evidence abounds that we are still several million homes short from what we need to reach market equilibrium. The National Association of Realtors says we are 5.5 million homes short and Freddie Mac says we are 3.8 million short. The recent uptick in homebuilding, while positive, is still far short of what is needed to close the home gap, but at least it’s going in the right direction.

What comes next?

It can take at least four to six months and often much longer to build a new house. And this is if permits are all in line. So it will take some time for inventory from new home construction to really make a difference in the market. But as prices stay high, more and more potential sellers of existing homes may decide to “test the waters,” as Lisa Liberatore put it, in the hopes of reaping a windfall from the sale of a home, camp, or rental property.

The problem for a lot of potential sellers is, as noted above, the market is so tight they often have no place to go. A reluctant seller of a primary residence with no specific plans on where to go once their home is sold simply becomes another potential buyer on the market experiencing the same frustrations as those shared by current buyers.

One final point made to me this week by Lisa Liberatore reflects the headwinds that still exists in terms of a true surge in inventory. According to Lisa, some homeowners are still holding back from listing their homes because they think that the longer they wait the more prices will rise. And they’re probably not wrong.

Ben Sprague lives and works in Bangor, Maine as a V.P./Commercial Lending Officer for Damariscotta-based First National Bank. He previously worked as an investment advisor and graduated from Harvard University in 2006. Ben can be reached at ben.sprague@thefirst.com or bsprague1@gmail.com. Follow Ben on Twitter, Facebook, or Instagram and subscribe to this weekly newsletter by clicking below.