COVID’s Effects on the U.S. Housing Market
In spite of early concerns that swept through the housing market due to COVID-19, demand in the residential real estate sector is actually seeing an increase in many markets, including a shift from city to suburban living as many in the labor force no longer need to be close to urban hubs due to remote work as well as a general desire to get away from population density. Housing starts are rebounding, mortgage rates are down, and the real estate industry is adapting how it does business.
The rules of supply and demand remain a major factor of why—although the U.S. economy is in a state of flux—housing demand and pricing are holding strong. A recent analysis from Redfin explains that ongoing uncertainty related to the coronavirus pandemic is a contributing factor to a shortage in the number of homes for sale across the nation, due in large part to would-be sellers holding off on listing their homes. “This lack of inventory has led to a significant amount of bidding wars, particularly for single-family homes priced under $1 million in desirable areas.”
The housing shortage is nothing new, however. The shortage of homes for sale had been an issue well before the COVID-19 pandemic, but the supply disruptions and the pandemic-related lockdowns have undoubtedly exacerbated the situation. As noted by Housingwire, a general shortage of available properties can be traced to severe underbuilding that resulted from the economic downturn more than a decade ago.
That said, real estate in many parts of the U.S. is again “heating up,” as reported by The National Association of Realtors’ (NAR) pending home sales index for May 2020. As relayed by The Washington Post, “the index spiked 44.3 percent, registering the highest month-over-month increase since its inception in 2001.
This same reporting cites historically low mortgage rates (just above 3%, approximately 2 percentage points below their level from 18 months ago), and an annualized new mortgage application uptick.
Housing starts, which had seen earlier decreases when COVID first hit, are seeing rebounds. In fact, in July the Commerce Department reported that housing starts increased 17.3% to a seasonally adjusted annual rate of 1.186 million units in June—the largest gain since October 2016.
Lawrence Yun, Chief Economist for NAR is forecasting “940,000 single-family home starts for 2021, which would be the most additions to the housing market since 2007, the year before the financial crisis.”
Among the most noticeable trends in the U.S. housing market is the desire of many city dwellers to move to the less populated suburbs. Sources reveal the reasons behind this trend as it relates to COVID-19 include the fact that densely populated areas make it hard to social distance, work from home means less need to be near a physical office, and the reality that city life is diminished in terms of nightlife, events, etc.
The luxury housing market, in particular, is seeing demand spike and an increase in entry prices, according to a report by listing website Realtor.com. Forbes quotes Realtor.com’s Chief Economist Danielle Hale as stating “The Covid-19 pandemic has reinforced the resilience of the housing market and, unlike prior downturns, the luxury market is leading the recovery.”
Likewise, second homes, especially for city inhabitants, are on the rise. For those who can afford it (low mortgage rates certainly help), a dwelling that might once have been a vacation home is now an alternate living space. Trends seem to be homes with an office (or two) where you can shut the door for some Zoom or Skype privacy, a yard to be outside, and close enough proximity to the “physical office” when and if in-person work situations fully resume.
There has been a shift, too, in how the real estate market is operating during these unusual times, to virtual real estate sales and Zoom buyer consultations. Even when in-person showings are not possible, the show must go on.
To sum up, the housing market appears to be on track to weather today’s uncertainties, and forecasters remain optimistic that demand will remain strong. NAR’s Yun recently provided these words of encouragement: “The temporary disruptions due to economic lockdowns will hopefully all be made up for next year. Demand is clearly there. Homebuilders will recognize that if they just build it, there will be people knocking on the door.”