Disclaimer | This article may contain affiliate links, this means that at no cost to you, we may receive a small commission for qualifying purchases.
The unexpected arrival of an earth-shattering pandemic caused a massive turmoil globally. Curious to know the position of the housing market? Find out more below.
The Covid-19 pandemic was as overwhelming and destructive as it was sudden. No one could have predicted the first wave, let alone the second one. Most businesses and industries around the world sharply plummeted due to the ongoing crisis of Covid-19. As expected, so did the position of the housing market.
However, it’s been a little over a year since the first wave hit us – hard. If you have been thinking about buying or selling a house, now may be as good a time as any. But are things finally beginning to look up in terms of the housing market?
Let us tell you all about it in this comprehensive guide.
Housing Market After A Glorious Year Of Covid
- Housing Market After A Glorious Year Of Covid
- The Stark Reality At The Beginning Of The Pandemic
- A Year After Covid-19
- What Changed Since The Beginning Of The Pandemic?
- An Emotional Response
- Work From Home Played A Significant Role
- Mortgage Rates Hit A New Low
- High-Wage Workers Are Actively Seeking Out Better, New Homes
- Rising Home Equity Is An Underlying Benefit For High-Wage Workers
- A Massive Generation Of Millennials Is Aging Into Homeownership
- Covid-19 Has Affected Both Supply And Demand
- A Change In Spending Patterns Of Households
- What Will The Position Of The Housing Market Be In 2021?
- The Surge To Purchase Second Homes
The Stark Reality At The Beginning Of The Pandemic
2020 saw the beginning of a worldwide pandemic we now know as Covid-19. As the coronavirus spread like wildfire throughout the planet, penetrating every business, industry, and sector we know of, businesses began plummeting, seeing new lows every day.
Even the best economists and real estate agents were not prepared for this dwindling market scenario. The economic uncertainty brought about by the pandemic caused everything to come to a standstill. Furthermore, financial, economic, and physical uncertainties caused potential buyers to shy away from exploring the housing market.
Home prices and mortgage rates began burgeoning, while the consumer interest and capacity to buy new homes started plummeting. This harrowing combination caused major distress in the housing market, as people began to wonder if things would look up in the near future.
Not just that, homeowners were hesitant to sell their homes in the wake of the pandemic. From early March to April 2020, more and more homeowners began delisting their homes, causing the number of homes on the market to plummet down by 25%.
April also saw another significant change – a 40% decrease in new listings of homes in the US market. Furthermore, the inventory of houses for sale decreased by 17% during the same period, causing a rising alarm amongst real estate agents.
A Year After Covid-19
Everything that goes down must come up. This golden rule has once again shown itself to be accurate, as the position of the housing market started to rise steadily.
A year after the commencing of Covid-19, home sales have started to look up – finally. More and more Americans are swooping to find and buy larger properties, causing home sales to rise exponentially.
Home prices in the US are rising at breakneck speeds, surpassing the highest peaks in the property boom since 2015. History has shown us that a drop in the demand amongst customers for new homes always accompanies a significant decline in the prices of property.
However, the turmoil brought on by the coronavirus did not facilitate this welcome drop in prices.
What Changed Since The Beginning Of The Pandemic?
Researchers and economists have been spending excruciating hours trying to figure out what changed since the beginning of Covid-19 in 2020. Well, there are quite a few significant factors that have caused this massive change in the position of the housing market. Let’s explore each point.
An Emotional Response
The Covid-19 pandemic brought about a drastic change in our everyday lives. No longer could we do the things we enjoyed on a daily basis. Forget going out to parks and malls, cinemas, and even to dine with friends and family. Even something as simple as taking a walk was restricted, and those who tried to surpass the Government protocols would face severe consequences.
Before we knew it, our lives became restricted within the four walls of our homes. What’s worse is that many people worldwide could not return home due to travel restrictions, so they remained stuck in hotels, rented rooms, or even at friends’ and relatives’ homes.
As expected, space became a huge asset all of a sudden. With nothing else to look forward to other than being home safe, people began looking to expand their properties or move into better ones.
Of course, factors like financial insecurity, physical health, and mental health played a huge role in individuals not actively seeking out homes during the first year of Covid-19. It all changed during year two – when people took the opportunity of low mortgage rates to finally grab the homes they had their eyes on for the past year.
Work From Home Played A Significant Role
During the first year of Covid-19, a large number of workers all around the world lost their jobs. This created a massive wave of insecurity and uncertainty, along with a dreading sense of helplessness and hopelessness.
However, things began slowly looking up after a few months as offices began offering employees the opportunity to work from home.
Once this new concept began making its rounds all over the world, workers started valuing their home space even more. A small home office, complete with a desk, a computer or laptop, and a calm working environment became a priority.
Although most people tried to turn their bedrooms or spare rooms into an office space, it didn’t yield the best results. How could it, since the majority of us are used to working in an office environment? Working from home became increasingly challenging as people got into unhealthy cycles of procrastination and overworking.
This brought upon the need to purchase a new home complete with a small home office. Most people began craving that additional space, and more importantly, a space to work peacefully without the continual ruckus of family life.
Real estate agents were quick to notice this trend and began putting up listings of beautiful, spacious homes, complete with a home office. Even now, this new norm has become our reality, where most of us are working from home and trying to make do with what we have.
Mortgage Rates Hit A New Low
The beginning of the pandemic in 2020 saw a massive decline in house sales due to several understandable factors. However, the Federal Reserve responded to this drastic change by introducing a new monetary policy. Furthermore, after massive deliberation between the top thinkers and researchers, they decided to revise their approach to the recent inflation.
Mortgage rates began rising slightly, going from 4% to 4.6% by the end of the first year of Covid-19. This change can be attributed to a response to the first economic stimulus announced at the start of the pandemic.
However, short-term interest rates have been purposely kept low by the Federal Reserve.
The slight rise in mortgage rates at the start of the pandemic opened a window of opportunity for sellers. Not just that, the response to the pandemic has caused the 30-year mortgage rates to drop lower than ever before – which is an excellent thing for potential buyers.
So, the mortgage that you could be expected to pay a few years ago for the same home decreased rapidly. Potential buyers took this opportunity to buy the homes they had their eyes on for years.
High-Wage Workers Are Actively Seeking Out Better, New Homes
It’s true; most workers globally have been furloughed or lost their jobs due to the Covid-19 pandemic crisis. That being said, high-wage workers around the world have been a little luckier than most. These workers who fall under the upper half of the income distribution may have been affected by the pandemic in other ways but were able to retain their high-salary jobs.
However, the reason behind them going relatively unscathed is because their work permitted them to quickly switch to a work-from-home environment, unlike most other industries.
This job security, along with little to no impact on their salaries, has given them the courage to seek out larger, better homes for themselves and their families. Not just that, most high-wage workers are likely to be homeowners already.
The low mortgage rates coupled with the high selling price of their homes have given them the power to buy new homes in this market. These workers are also acutely aware that work from home is here to stay. Thus, it made more sense for them to invest in a more spacious property that allows them to enjoy the perks or restrictions of living their daily and working lives from their homes.
Another crucial factor to consider is commutation. Now that work from home has become the norm, homeowners are able to look for properties that are farther away from their workplace.
Since commutation isn’t a factor to consider anymore, at least for the near future, potential buyers have the freedom to choose certain homes that they have had their eye on but could not purchase due to the long commute daily from their homes to the office.
Rising Home Equity Is An Underlying Benefit For High-Wage Workers
Although this is not a golden rule, it has been observed that the majority of high-wage workers are current homeowners. At least four out of five high-wage workers own homes.
Currently, the shortage of housing inventory coupled with the growing demand for new homes in the market is causing nominal home prices to skyrocket. Although these factors come in the way of home affordability, it translates to good news for current homeowners.
During the second year of Covid-19, home equity has reached record-high levels. This opens up numerous opportunities for high-wage workers to consider getting a second home or moving into a more spacious property, or even selling their current homes.
Furthermore, the financial stability that comes to most high-wage workers due to remote-working opportunities is placing them with more disposable income in their hands. Now, many of these high-wage remote-working individuals are considering opting for bigger homes due to the advantages it brings, especially in today’s climate.
A Massive Generation Of Millennials Is Aging Into Homeownership
Although the beginning of 2020 saw a record-low inventory for housing, things are slowly getting back to normal after the passing of the first year of Covid-19. One of the primary reasons behind this massive demand for homes is millennials.
The generation born between 1981 to 1996 is finally coming to the age where they are actively seeking homes for themselves and their families.
That being said, millennials are one of the first generations that are “late” in reaching these vital milestones of life – getting married, buying their own home, having a family, etc. The median age of first-time homebuyers and homeowners was 29 back in 1981. However, this median age has now been pushed to about 33 (in 2019).
There are several significant factors behind this push. Most millennials have now reached the age where they can actively consider getting their first homes. Not just that, the number of millennials reaching the first-time, home-buying age is likely to increase within the next five years.
Keep in mind that this generation of millennials is less likely to currently own homes. However, they are also more likely to buy their first homes within the next five years. This is extremely good news for the housing market, as the surge in demand from customers will slowly but surely bring the market higher.
Covid-19 Has Affected Both Supply And Demand
There was a massive drop in the sale of homes during the beginning of the pandemic in 2020. However, real estate activity soon began looking up and eventually recovered to what it was like during pre-pandemic times. In fact, within the span of a few short months, the pending sales of homes which were earlier down by almost 30%, once again rose to above 30%.
The demand for new homes, which plummeted sharply at the beginning of 2020, began skyrocketing by the end of the same year. 2021 sees a brighter future in terms of house sales, as individuals finally have the courage to buy the homes they have been thinking of getting.
A Change In Spending Patterns Of Households
A significant change that economists have studied during the pandemic was the buying and spending patterns of customers. As such, a massive shift in spending patterns was noticed from the start of the pandemic in 2020 till the end of the first year.
Due to certain obvious reasons, such as travel and entertainment restrictions, households on average were spending a lot less money on such expenses. In fact, travel and eating out were almost entirely restricted.
Furthermore, the cost of daily commutation also saw a sharp decline, as most workers began to take up more work from home opportunities. Not just that, several workers around the world lost their jobs, so the need for commuting daily decreased even more rapidly.
On the flip side, households began spending more money on the betterment of their current spaces. Investing in proper furniture and equipment to facilitate good work from home practices became a priority.
Not just that, people began taking an active interest in cooking their own meals at home, rather than relying on ordering food. This also contributed to a significant decrease in how and where households were spending their money.
High-income families that were able to retain their jobs were in a better position to save money and think about smart investments. As expected, one of the first things that come to mind is to opt for a bigger, better space.
What Will The Position Of The Housing Market Be In 2021?
There is a natural ebb and flow to everything in life. Just as the position of the housing market dipped unnaturally during the beginning of 2020, only to rise a year later, a natural, slight decline is expected in 2021.
That being said, even though the demand for homes may cool off slightly, the new Fed policy will ensure that the demand for new homes in 2021 still reaches new highs compared to previous years.
A vital aspect to remember is that vaccines have started rolling out, and more individuals and families are getting inoculated. This, coupled with emotional, physical, and financial stability, is driving more households to explore the housing market and look for better options.
The Surge To Purchase Second Homes
An interesting shift that has been noted to be caused during the pandemic is the accelerated demand for people to purchase second homes. Several homeowners had been sitting on the idea of purchasing a second home for several reasons – more space, a smart investment, or choosing a retirement abode.
The Covid-19 pandemic brought these plans to a sudden standstill. Homeowners began shying away from their initial plans due to financial insecurity, instability, and a sudden surge in the prices of homes.
However, once mortgage rates began dropping, and people started venturing into newer employment avenues, a certain sense of stability and normalcy began returning. This stability brought along with it an increased demand for second homes by current homeowners.
This surge was also noticed amongst near-retirees who began hastening their purchase for a second home. However, most of these individuals were still not ready to give up on their current homes, worried about the outcome of the pandemic.
These factors are leading to the rising price of homes. Long-term pressures, conjoined with short-term demands and requirements, are causing a rapid push in the prices of homes in the real estate market.
The increased monthly cash flow along with decreased mortgage rates are creating a tsunami of sorts in the housing market. If you have been sitting on the idea of buying a new home, hiring a realtor may be the ideal choice right now.
Summing It Up
There is a lot of speculation going on around how the ongoing pandemic will continue to affect every part of our lives.
Although things were starting to look up slowly, the eminent second wave and third wave of Covid-19 may cause markets to crash once again, pushing our realities to shift further. The current high rate of house prices coupled with the rising demand for new homes is causing an imbalance in the market.
That being said, even though there was a global recession and sense of dread and helplessness around the world, the position of the housing market was not all gloom and doom – which turned out to be a good thing.
It is imperative to study the changing business models. And also take into account the economic and financial position of individuals when making the decision to buy a new home.
That being said, if you have been contemplating moving into a bigger space, now may be as good a time as any.