COVID's Impact on the Housing Market
Are you interested in buying a home? (That's probably why you're reading this.) We're sharing what you need to know about your home buying journey and the effects of COVID 19, especially as it relates to how you should be thinking about everything that’s going on and how you can take advantage of the market dynamics currently in play.
2020 was truly a year unlike any other. In the face of a worldwide pandemic we were forced to adapt and change our way of living. Many of us have been forced to work from home or possibly even lost our jobs. We’re no longer freely able to go outside or gather in public places unless it’s for immediate necessities and even when we do we need to strictly abide by social distancing rules. As of the time of writing this article the US is in the middle of a large vaccination effort to try and get all Americans back to their normal lives. However that’s not to say that we won’t continue to see the impacts for COVID for some time to come, especially within the housing market.
Let’s take a quick moment to look back at all that’s happened over the past year and how that’s affected the housing market so far. Back in March of 2020 when lockdowns were just beginning, at least in the United States, the housing market was on fire. After having recovered from the 2008 financial crisis, housing prices were perpetually on the rise and mortgage rates were as low as they’ve ever been. High density cities with strong demand like New York and San Francisco were seeing record high prices on properties being sold. Fast forward about a year to now and that momentum doesn’t seem to necessarily have changed all that much. In fact in some ways things may be even harder now as a home buyer than it was when the pandemic started.
Why? Well although COVID may have shut down many activities like social gatherings and indoor dining, it hasn’t done much to curb people’s desires to own a home. In fact with everyone being forced to stay at home all the time, some people may even be thinking about it more than they were before.
Now you may be thinking, but people lost their jobs. How are people going to afford a home when they don’t have income? It’s a fair question but unfortunately the data shows us that this may not be as large as a factor as someone may initially think. Reason being the folks who lost their jobs tended to be those in the low to middle income demographic who unfortunately were unlikely to be looking to buy a home to begin with. Those in the middle and higher income brackets were much more likely to have been in the market and their jobs were not as impacted during the lockdowns. In fact those folks may have even benefited since they were able to make the same amount of money and had fewer expenses to worry about. What does this all mean? COVID really did nothing on the demand side of things.
When it comes to supply though, homeowners became more hesitant to put their home on the market during the pandemic due to fear of being exposed to the virus. The flow of properties coming into the market for sale has seen a decline. This has taken what was already a competitive environment and made things much harder for those looking to buy a home.
Another trend at play that is important to understand for anyone currently looking to buy a home is that people are moving. With most people now being allowed to work from home and prominent tech companies like Facebook announcing that these changes will largely remain in effect even after the pandemic, many people are moving out of cities with high costs of living to more affordable areas. According to USPS, approximately 15.9 million people have moved during the coronavirus pandemic. Some are even opting to move to new states entirely. Popular destinations seem to be states like Texas and Florida where there are no income tax. Tampa Bay’s housing market for example is actually so hot right now that real estate agents are worrying they may run out of inventory in less than a month. The unfortunate byproduct of all this is that the market is currently heavily favored towards sellers right now. Even in cities like New York and San Francisco that have seen a max exodus, there’s still enough demand with the remaining population that prices have not fallen.
So we’re now in a situation where housing prices and demand have risen and continue to rise while inventory is becoming more scarce all across the board.
Does this mean you should give up on buying a home? Not necessarily. It just means you may want to be a little more careful if you want to buy a home in the immediate future. Understand that the cards are stacked against you right now and so if you’re dead set on buying a home just make sure that you’re getting everything you’re looking for. Don’t be so eager that you overlook important details like structural damage or pay too much above asking price simply to outbid the other buyers as you may regret this later.
Once things start returning back to normal, it’s likely we may see the pent up inventory start to hit the market which will only be beneficial to those looking to buy a home. And although the housing market has fared well, it’s likely that the economic impacts of this pandemic will continue to be felt for quite some time and therefore we’re likely to see mortgage rates continue to be as low as they are for at least a little while longer in an effort to help stimulate the economy. These are all wins for the home buyer.
With the run up of housing prices up to this point some believe that the housing market may be a little overheated right now and sources like CNBC believe that 2021 will see a bit of a correction, which is where our word of caution comes from. However it’s unlikely that this correction will be all that dramatic or anywhere near as severe as the 2008 crisis, and so it’s possible the correction will fairly quickly reverse course and that we see the upward trend continue onward in due time.
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