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Simon Says: Why the housing market is a seller’s market

In the Riverwood subdivision of Evans very few of the 1400 homes are for sale—and if they are—homes are not lasting long and selling prices are higher than normal. This home sold for the asking price of $479,000 within a few days. (Photo courtesy Sally Kolar Photography)

I was talking to a former student who was describing how hard it was to buy his first home in Augusta because of the hot housing market. It prompted me to look up some local data from U.S. Federal Housing Finance Agency. The latest data is for the fourth quarter of 2020 and showed a 5.4% annual increase in house prices in the Augusta MSA. House prices locally have been increasing every quarter since the second quarter of 2014.

Much of this steady rise in house prices has been brought about by record low-interest rates on mortgages. Interest rates on 15-year fixed-rate mortgages averaged 7.28% in the 1990s, and 5.8% in the first decade of this century. In the last ten years, they have averaged just 3.3% and have been below 2.5% since the summer of 2020, and are currently 2.3% (May 6, 2021). In fact, with inflation at 2.6% real interest rates are negative!

Nationally, in February, the S&P/Case-Shiller house price index has increased 11.9% from a year earlier. This index is not necessarily comparable to local house prices because they are calculated in different ways. The local data is for houses sold in any particular month, but the Case/Shiller index is able to track sales of the same house over time. Tracking the same house sale over time ensures we are comparing the same set of houses with the same characteristics. The increase in house prices locally may be because larger houses are selling more than last year but it is impossible to say if this were true with just average house prices.

Overall, however, there is strong evidence to suggest a robust housing market that is good for sellers, but not my former student trying to buy his first home.

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