High buyer demand and low for-sale inventory have made for a hot housing market. Homes are selling quickly and buyers are having to compete for available listings. But, according to the most recent outlook from Fannie Mae's Economic and Strategic Research Group, the market is expected to cool off at some point this year. When that happens is still a little uncertain, however. “While housing is still expected to moderate in the new year from its unsustainably high pace in the second half of 2020, the ESR Group did upwardly revise its 2021 sales forecast on new data suggesting that the expected cooling will occur over a longer time frame than previously anticipated,” the group writes. In some ways, the economy and housing market's behavior this year is dependent on how quickly and effectively the coronavirus vaccine can be distributed. The ESR group expects that its distribution will help boost economic growth and support high levels of interest from home buyers.

The S&P Case-Shiller Home Price Indices has collected home price data for the past 30 years and is considered among the leading measures of U.S. home values. Their most recent release, which covers data through the end of 2020, shows last year's home-price performance was one of the best in index history. Craig J. Lazzara, managing director and global head of index investment strategy at S&P, says prices have been accelerating since June of last year. “As COVID-related restrictions began to grip the economy in early 2020, their effect on housing prices was unclear,” Lazzara said. “Price growth decelerated in May and June, and then began a steady climb upward, and December's report continues that acceleration in an emphatic manner. 2020's 10.4 percent gain marks the best performance of housing prices in a calender year since 2013.” Phoenix, Seattle, and San Diego were the cities reporting the biggest year-over-year price gains – though all but one of the included metros reported price increases over the previous year.

The typical home for sale was on the market for just 21 days in January, according to the National Association of Realtors. That's down from 43 days one year earlier. It's yet another sign that fewer homes for sale has caused the homes that are for sale to sell quickly. So quickly, in fact, that 71 percent of the homes that sold in January were on the market for less than a month. Lawrence Yun, NAR's chief economist, says home-buyer demand has started the year off strong . “Home sales continue to ascend in the first month of the year, as buyers quickly snatched up virtually every new listing coming on the market,” Yun said. “Sales easily could have been even 20 percent higher if there had been more inventory and more choices.” Low inventory continues to be the housing market's biggest issue. The lack of homes for sale has caused more competition for available listings, higher prices, and fewer options for buyers. According to the NAR, total housing inventory is now at a 1.9-month supply. A six-month supply is considered a healthy market.

Home builders know the housing market. Their business depends on it. That's why the National Association of Home Builders keeps a monthly measure of how confident they are in the market for newly built single-family homes. If builders are optimistic, chances are the market is doing well. In February, the index – which scores builders' responses on a scale where any number above 50 indicates more builders view conditions as good than poor – was up one point to 84, just below its all-time high. Robert Dietz, the NAHB's chief economist, says there are several factors keeping builders positive. “Demand conditions remain solid due to demographics, low mortgage rates, and the suburban shift to lower cost markets, but we expect to see some cooling in growth rates for residential construction in 2021 due to cost factors, supply chain issues, and regulatory risks,” Dietz said. Despite those challenges, index components gauging current sales conditions and expectations for the next six months both show home builders are feeling optimistic about the 2021 market. 

Generally speaking, home prices rise more than they fall. If you look at year-over-year data, you'll see home prices increase a few percentage points almost every year. There are, of course, exceptions, but homeownership got its reputation as a safe investment for good reason. So the real question is by how much and how quickly are prices are rising. One way to tell is to look at asking prices. The asking price of a home is the amount the seller hopes to get for it – not the final sales price. In most years, asking prices won't surpass the previous year's peak until spring, when the sales season starts to heat up. This year, though, they've already beat 2020's high. In fact, according to one recent report, asking prices of newly listed homes hit $334,770 during the first week of February. That's a 10 percent jump from last year at the same time. It's also an indication that prices are rising quickly and will likely continue to until more homes become available for sale.

There are many ways to measure housing market activity. You can look at it geographically and compare how one region's homes are selling compared to another's. Or you can look at it historically and compare today's numbers to the past. You can also look at it based on price range. Is the high end of the market performing differently than the market for affordable homes? Are first-time buyers more or less active than luxury buyers? Using these different perspectives can help you breakdown what's happening in the market. For example, a recent report from an online real estate portal shows that the number of searches for homes over $1 million is rising. In fact, 10.8 percent of saved searches in January were filtered for more expensive homes. That's an increase from last year when it was at 8.5 percent. It's also the highest the site has ever recorded. So what's happening? Well, the numbers are an indication that rising home prices and low for-sale inventory are having a larger impact on buyers in the middle and lower end of the market than they are on those seeking higher priced homes. This is no surprise, as the market for high-end homes typically rebounds faster after an economic downturn. It's also a sign that low inventory may have some buyers waiting till spring when more homes will be listed for sale.

Fannie Mae's Home Purchase Sentiment Index surveys Americans each month to gauge their feelings about the housing market and their personal financial situation. The survey asks participants for their opinion on mortgage rates, home prices, their income, job security, and whether they think now is a good or bad time to buy or sell a home. In January, the index rose 3.7 points from the month before, with much of the improvement due to a 16 percent jump in the number of respondents who said now is a good time to sell a house. Doug Duncan, Fannie Mae's chief economist, says there are several factors responsible for the increase. “Overall, the index's monthly increase was driven largely by a substantial jump in the share of consumers reporting that it's a good time to sell a home, with many citing favorable mortgage rates, high home prices, and low housing inventory as their primary rationale,” Duncan said. However, while the good-time-to-sell component saw a significant increase, the index remained mostly unchanged in other areas, including job concerns, mortgage rate expectations, and whether now is a good time to buy. 

Spring is typically the season when the housing market heats up. And, while it's still more than a month away, prospective buyers hoping to start their home search in the coming weeks should be prepared. The winter market hasn't ever really cooled down and it's a good sign that it'll be a fast-moving and competitive spring. For example, according to one recent analysis, home buyer demand, at the end of January, was 60 percent higher than it was last year at the same time. Additionally, the number of homes for sale was down 36 percent and the number of new listings fell 13 percent from year-ago levels. In other words, there are still a lot of home buyers and a lower-than-normal number of homes for sale. Expectations are that, as the season wears on and the coronavirus-vaccine rollout continues, more homes will become available for sale, which will help balance the market. But, at least for the first half of the year, buyers should be prepared to compete for the homes that are available. That means, having your finances and financing in order and being prepared to act quickly when you find a home that meets your needs.

A lot has been written about how the coronavirus and remote work have led home buyers to flee urban centers and head to the suburbs. The idea that Americans – who can work from home and no longer have to worry about their commute – are leaving expensive city centers and moving to more affordable homes in the suburbs has been a consistent theme since the pandemic began. It makes sense. After mitigation efforts forced more of us inside, we began reevaluating what we want in our homes. That, naturally, led to rising interest in moving somewhere where we could have more for less. But are the suburbs always more affordable than living in the city? According to one recent analysis, not necessarily. That's because, in some areas, the suburbs are actually more expensive than living in the urban core. In metros like St. Louis, Cincinnati, Kansas City, and Indianapolis, for example, home buyers looking for a more affordable option have to look in the city to find a better price. That is the opposite of trends seen in higher-priced coastal cities like New York or San Francisco. It's also a good reminder that what's true in one location may not be true in another.

When there are fewer homes for sale, the homes that are available sell quickly. That's no surprise. It's common sense. And, since inventory has been low for quite a while now, the challenges of rising prices, intense competition, and bidding wars are familiar to anyone who has recently looked for a home to buy. But while low inventory is nothing new, the combination of a lower-than-normal number of homes for sale and the housing market's typical seasonal slowdown have caused recent listings to sell even more quickly than usual. In fact, they're selling faster than they have in years. How fast? Well, according to one recent measure, 55 percent of homes that went under contract during the week ending January 24 had an offer accepted within two weeks of hitting the market. That's faster than at any time since at least 2012. Fortunately, winter's lack of listings should start to turn around as the spring season approaches and more homeowners put their homes up for sale. When that happens, price increases and competition should both begin to moderate.