McHenry County Housing Market - 2021 ReviewBy Ricardo Lavariega
The housing market in 2021 was another record-breaker with rising median sales-prices and the lowest inventory in history. COVID-19, underinvestment, underproduction, loss of residential construction jobs, record-low interest rates, an increase of first-time home buyers - these all contributed to the housing environment we have now.
In December of 2020, there were 1,120 homes for sale in McHenry County. That decreased dramatically to 620 in December 2021, a drop of 44.7%.
Homes for sale dropped 30.89% from December 2019 to December 2020 from 1,622 to 1,120.
Residential construction is a significant industry in the U.S., and it employs a large number of people. Employment in the industry stood at more than 1 million individuals at the peak of the housing market bubble in 2006. It then dropped to about 560,000 employees in May 2011, but has worked its way back to about 872,000 in March 2021. The result has been underproduction in every major region in the US, especially in the last decade.
MONTHS OF INVENTORY
There was 2.3 months of available inventory in December 2020, which fell to 1.1 months of inventory in December 2021, a drop of 52.17%.
Before that, there was 3.6 months of inventory in December 2019 and 2.3 months of inventory in December 2020, a drop of 36.11%.
If there were no new listings and we continued to sell at the current rate, all of the homes on the market would be sold in 1.1 months.
In the last 20 years, the underbuilding gap in the US totaled more than 5.5 million housing units. When including the loss of existing units through demolition, natural disaster, and functional obsolescence, the gap totals 6.8 million units. From 1960 to 2020, Residential Fixed Investment (RFI) accounted for approximately 5% of total GDP, which has declined significantly over the last 12 years. Since 2008, RFI accounted for only 3% of the GDP. COVID-19 has exacerbated the issue by causing people to put off selling their homes, bringing the months of available inventory to record lows.
MEDIAN SALES PRICE
The median sales price in December of 2019 was $220,000. We ended calendar 2020 with the median sales price at $240,000, an increase of 9.09%. In 2021, we ended with the median sales price at $269,635, a 12.35% increase.
Prices may appear ridiculously high, but we actually just surpassed prices immediately before the market crashed in 2008. In January of 2008 the median sales price was $226,000, and we passed that value in July 2020. Continued underproduction has caused escalation in the cost of renting and rapid house price increases, exacerbating a growing affordability crisis in many parts of the country.
In McHenry County, we saw a 16.57% increase in home sales in calendar 2020 from, 5,450 to 6,353.
In 2021, that increase tapered off to 2.97%, with 6,542 sales.
The lack of inventory has kept the number of home sales from rising higher, but the demand is still there. At the same time, the 30-Year Fixed Rate Mortgage Average in the United States dropped to a record low on January 7th, 2021, to 2.65%, bringing a large number of first time home buyers into the housing market.
TIME ON MARKET
The average time on the market for a Single-Family Home listing was 74 days in December 2019, dropping 1.35% to 73 in December of 2020, a drop of 1.35%.
The drop rate increased to 53.42% in 2021, ending at 34 days.
No one knew how COVID-19 would impact the housing market, but having dealt with it for a year one thing we saw was an increase in offers sight unseen, which means writing offers on a properties without even seeing it in person. The large increase in demand has meant very little time on the market in many cases.
SHOWINGS PER LISTING
There were 5.7 showings per listing in December 2019, increasing by 43.86% to 8.2 showings per listing in December 2020.
The following December, that was up by 53.66% to 12.6 showings per listing.
Activity was expected to increase in 2021, because it slowed down significantly in the first 6 months of 2020 which pushed buyers and sellers to wait until later in the year and into the beginning of 2021. An increase in showings from in calendar 2021 gives evidence that buying demand is not slowing down.
These last two years have been something that no one has ever seen: record low interest rates, record high median sales prices, record low inventory, and record high demand. The NAR is working on putting policies in place to increase production to fill in the underproduction gap that has caused an affordability crisis for many individuals.
There is no sign of stopping yet, although we will not see the gains in price we've seen these last couple of years. Home sales cannot continue to increase due to lack of new listings, while buyers are starting to become discouraged because prices aren't coming down, and there is a lot of competition.
Sources: MRED, Housing is Critical Infrastructure: Social and Economic Benefits of Building More Housing by RCG, Housing is Critical Infrastructure: Social and Economic Benefits of Building More Housing by the Congressional Research Service
Ricardo Lavariega is a realtor serving McHenry County and the Northern Illinois area.