Stock Market Insights

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The housing market is like a Silver Dollar City roller coaster right now. It surged during the pandemic but seems to be cooling quickly.

Home sales surged because of late to the game millennials and urban flight. Many millennials, who had been resistant to homeownership, saw the benefit of owning a home after being stuck at home during the shutdown. The pandemic also led to an urban flight because many families fled the cities to the suburbs and countryside to enjoy more space. When you add in historically low mortgage rates you can understand why the home inventory shrank and home prices went up. Literally, there were many more buyers than there were sellers.

Though it feels like houses are still selling out of control, in actuality home sales are slowing considerably. Last week’s April report of month-over-month home sales showed that sales fell in April for the third consecutive month. During the pandemic when many parts of the economy were getting hammered, economists pointed to the surging housing market as hope that the rest of the economy would follow, but this once bright spot is now beginning to falter.

So, why is the housing market slowing? Simply because the conditions have changed dramatically. There are four areas that affect the housing market the most: mortgage rates, material costs, available inventory, and the most importantly, home prices. 

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Mortgage rates have climbed, building materials have increased, and home prices have risen significantly. The average 30-year fixed mortgage rate rose from 2.67% on December 1, 2020, to 3% on May 1, 2021.

Building materials have risen in cost, lumber especially. In January 2020, the Random Length Lumber continuous contract, which prices in dollars per 1,000 board feet of lumber in the futures market, was about $400. On May 7, 2021, the Random Length Lumber continuous contract peaked at $1,670 but as of May 27, 2021, has pulled back some to $1,315. Though not at its high, lumber is still expensive. Builder confidence was high last fall but has flattened out in the last few months as the cost of materials prices keep edging up. At the end of April 2021, the National Association of Homebuilders said rising lumber prices added $35,872 to the building price of a new single-family home.

The housing market will continue to slow, as will new building starts because home builders and potential buyers are facing a headwind of higher mortgage rates and rising home prices. These costs are beginning to price many houses outside the reach of the remaining potential homebuyers. Owning a home is still a major part of the American dream but the housing market might be in for a rough patch even as the economy continues to rebound, at least until prices come down or wages go up.

Have a blessed week!

All investment and financial opinions expressed are intended as educational material. Although best efforts are made to ensure the only information is accurate and up-to-date, occasionally unintended errors and misprints may occur. Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. PCIA: 6201 College Blvd., 7th Floor, Overland Park, KS 66211. PCIA doing business as Prime Capital Wealth Management (“PCWM”) and Qualified Plan Advisors (“QPA”). Securities offered by Registered Representatives through Private Client Services, Member FINRA/SIPC. PCIA and Private Client Services are separate entities and are not affiliated. Dr. Baker has attained his D.Min., the designation for Doctor of Ministry, and his AIF®, the designation for Accredited Investment Fiduciary®.

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