Let's start by looking at the numbers for Pinellas County. At the end of February, 2021, there were 2,053 houses on the market. At the same time last year, there were 4,510. That's 54.5% fewer single family houses for sale. Yet there were 11.4% more sales year over year for the same time. New listings were down 9.9% in that time. In real estate we look at absorption rate. That's the rate at which homes are being sold. The higher the number, the faster they are selling. In February 2018, the rate was 35%. In February 2021 it was 152%! Fewer homes being listed + more homes selling = very few houses to choose from for today's buyers. Why is this happening?
Well it isn't because houses are less expensive. February 2020 the average house price in Pinellas County was $362,088. In 2021, it jumped to $416,967. Many people say it's because interest rates are so low that more people can afford to buy a home now increasing demand. Maybe that has something to do with it, but maybe not. The number of cash sales in Pinellas County is up 20.2% in February 2021 over last year. (We'll come back to interest rates later.) Demand is also up in part due to the massive millennial generation who are now at peak home buying age, but what else could be going on?
Some people think this is happening because of the pandemic. Maybe sellers don't want strangers walking through their homes bringing with them the possibility of the corona virus. All through the pandemic the absorption rate for houses in Pinellas County has only once dropped below 40%, and since June, 2020, it's been over 80%. So I don't think we can say it's just the pandemic. Besides, for everyone who may be afraid to sell because of virus concerns, there is at least one family who has realized their home doesn't really fit them since they have been spending so much time in it the past year.
There is the possibility of the government forbearance on mortgages keeping people in houses who would have sold by now, but that still doesn't explain how we got here. Inventory was very low and absorption rates were high prior to the pandemic. This problem may have been worsened by the pandemic, but it wasn't caused by it. Many of my colleagues are expecting to see a large number of properties hit the market when the forbearance is lifted due to short sales and foreclosures. Foreclosures can take years, so even if this is the case, don't expect it to happen quickly.
Let's look way back to the housing crash of 2007. That crash decimated the home building industry. Many construction workers were forced into other jobs and never went back. The comeback for that industry has been hampered by other issues as well. Tighter building restrictions helped to slow the comeback as well as President Trump's tighter immigration policies further restricting the labor supply and tariffs increasing the cost of building materials. Without as much new construction, home owners have fewer options and incentives to sell their current houses. Even if the construction industry took off like a rocket, it would take years to catch up to the demand. The housing crash also caused many people of retirement age to put their plans on hold and stay put. Many of their adult children moved back home due to job losses so they didn't downsize. As the economy improves and the pandemic subsides, we may see these sellers coming into the market, but again I doubt it will happen quickly.
Circling back to the low interest rates, although that has upped the demand for homes to purchase, it has also reduced the supply. Many homeowners who would have otherwise sold have opted instead to refinance their current home to take advantage of the low rates. Many more homeowners have gone ahead and moved up to a new home but opted to keep their previous home to use as an investment property. The low interest rates and low mortgage payments combined with high rents and the popularity of owning an Airbnb makes this a great time to own rental property. This also added to the demand side of the situation as well with more and more people opting to become landlords. However, as the number of rental properties increases, the rents are starting to come down. This could cause some investors to start selling.
Whatever the cause, the situation is feeding itself and growing. Owners of starter homes don't want to sell now because there is so little for them to move up to. So they wait. The owners of the move up homes are in the same boat. Where will they buy in this market with slim pickings? So they wait. Demand keeps going up and supply keeps going down. What the situation is doing to buyers is not good. To win a contract on a house in this very competitive market buyers are buying properties sight unseen, paying way over asking price and waiving inspections and appraisals, all of which is not healthy for the real estate market. It's even worse for first time buyers who are getting priced out altogether. When these buyers are forced to continue renting instead of owning, it's harder for them to build wealth.
I hope you weren't looking for a solution from me, because I don't have one. All I can offer is somewhat of an explanation of how we may have gotten here and hopefully some insight into where we may be heading. I don't believe we are heading towards another housing crash, however. Like so much of life, I think we just need to be patient and wait for the pendulum to swing back in the other direction.