his post examines the state of the U.S. housing market now that much-needed supply has come to the market. We also explore why the worker shortage may not be as detrimental to the economy as was originally expected because of the renewed growth of entrepreneurship.
Housing inventory in the United States continued to rise in August, up 30% from the record low in April 2021. Although this increase in inventory is meaningful, there are still 74% fewer homes on the market than a year ago. We’ll probably see the beginning of some market cooling — but in the context of the hottest housing market in history — with some price corrections as we return to a steadier state of growth.
In the long term, employment and GDP reveal much about the economic climate and typically trend with housing prices. GDP, according to the U.S. Bureau of Economic Analysis, gained 1.6% quarter-over-quarter in 2nd Quarter (2Q) 2021, which is about 1% higher than the long-term quarterly growth rate of 0.6%. While we’re still underwater, the current growth rate is far higher than normal and should bring us back to our pre-pandemic trajectory by the end of the 2nd Quarter 2022.
Another large government-sponsored infusion of cash into the economy is very unlikely to happen. We may, however, have another source of economic stimulus: the massive growth in entrepreneurship over the last 16 months. From 2004 to 2019, the United States averaged 2.8 million new business applications per year. In 2020, there were 4.36 million, and in 2021, there have been 3.68 million as of August. This means that over the past 20 months, the United States has seen 8 million new business applications.
The large number of new business applications may also explain why established companies have found it difficult to fill job openings. It seems that a large number of workers may now be working for themselves. Although the difficulty with hiring employees poses troubling challenges to employers, it thankfully may not indicate a struggling economy. As risks from the delta variant wane, we’ll likely see more unemployed workers reentering the workforce.
East Bay Housing
During August 2021, in the East Bay, the median single-family home price remained stable for the third month in a row in Alameda County and declined in Contra Costa County. However, year-over-year, both Alameda and Contra Costa Counties continue to show price increases.
Currently, new listings are barely outpacing demand. In August 2021, the East Bay had over 450 fewer homes for sale than it did in August 2020, a 10% decline. Furthermore, when we compare the current inventory to pre-pandemic inventory in August 2019, the number of homes for sale has declined by 28%. The sustained low inventory will likely cause prices to remain stable or appreciate throughout 2021.
The high demand and low supply in the East Bay have driven home prices up over the last year, but the huge price appreciation is slowing. Inventory will likely remain historically low this year with the sustained high demand in the area. Overall, the housing market has shown its value through the pandemic and remains one of the most valuable asset classes. The data show that housing has remained consistently strong throughout this period.
We expect the number of new listings to slow in the coming months. However, the current market conditions can withstand a high number of new listings, and more sellers may choose to enter the market to capitalize on the high buyer demand. We expect the high demand to continue, and new houses on the market to sell quickly.
As always, I remain committed to helping my clients achieve their current and future real estate goals. As an experienced professional I am happy to discuss the information shared in this newsletter. I welcome you to contact me with any questions about the current market or to request an evaluation of your home.