The U.S. housing market is on a hot streak — and it may get even toastier for some home sellers in the next several weeks. Home prices tend to sell at a premium during May and June, providing a significant bump over a home's estimated market value, new research shows.
Home sales that close in May fetch a premium of 13.4% compared with their estimated market value, according to an analysis of more than 40 million home sales over the past decade by real estate analytics firm ATTOM Data Solutions. Sellers in June enjoy the second-highest premium to estimated market value, at 11.7%.
By comparison, the smallest premiums occur in October and December, when sellers typically sell for 5.8% above estimated market value.
The findings come as home sellers have enjoyed a year of price gains thanks to an ultra-tight housing market that's driving prices higher across much of the nation. Home prices in the 20 major metropolitan areas tracked by the S&P Case-Shiller Index are up more than 12% compared with a year ago.
In dollar terms, that equates to a jump of $35,000 in the median selling price from last spring, according to a report from Morgan Stanley strategist Vishwanath Tirupattur.
"If you are competing with other buyers in the market during a typically hot selling season, you can expect to pay a premium in today's market — and it's amplified by COVID and the tight inventory we have right now," ATTOM chief product officer Todd Teta told CBS MoneyWatch.
The data reflect the price when a home sale closes, which typically occurs about 30 days after a deal is struck between a buyer and seller. That means that May prices are tied to homes that went under contract in April, while June's premium reflect contracts negotiated in May, Teta explained.
Higher property gains in the spring and summer months are tied to demand. Buyers typically enter the market in the spring and exit by mid-summer, as families often want to get settled before the school year begins in late August or September. With more buyers in the market, that pushes up prices as they seek to outbid each other.
"Only folks that need to sell would list in the winter," Teta said.
More homes for sale?
The combination of the pandemic and historically low mortgage rates have sparked strong demand for homes during the past year, with home prices rising 15% in 2020, according to the National Association of Realtors. Although home buying dropped at the start of the health crisis, buyers returned to the market in force, drawn by a desire for more space or opting to relocate after switching to remote work.
Buyers should brace for tight conditions for the next several months — and may find they need to pay above listing price to secure a home, Teta said. But ATTOM expects home prices should stabilize later this year as inventory eases due to a couple of changes.
For one, the foreclosure moratorium for homeowners ends June 30, while the mortgage payment forbearance enrollment window also ends on June 30. That may spur some homeowners to list their homes. Second, concerns about President Joe Biden's proposal to increase the capital gains tax — which would also apply to real estate sales — could spur investors to sell some property before those taxes rise, also adding to available real estate inventory.
Expect prices to keep rising
Still, Teta said buyers shouldn't expect a bargain even if more homes come onto the market later this year. "Nothing is out there that says prices are going to come back down 15% to 20%, where you 'll get a deal," he said.
Home prices are likely to continue their upward trajectory, although perhaps not at the current "torrid" pace, according to Morgan Stanley, pointing to demographic changes.
"Thanks to the demographic dividend, millennials continue to drive household formation at a rate 30%-50% above the long-run rate of new household formation," Tirupattur wrote in his report. "Thus, demand for shelter is likely to remain robust for some time to come."