There’s no question the global COVID-19 pandemic really shook things up in the past year, upending everything from travel to healthcare to social plans. Along with everything else, the housing market went on a wild ride, setting records in unprecedented conditions.
A Slow Start
No one could have predicted exactly how the housing market would respond to the COVID-19 pandemic. With significant job loss and financial uncertainty, the early months of the pandemic took a big toll on the economic health of the nation. In early March, as lockdowns were taking place to control the spread of the coronavirus, the Federal Reserve dropped interest rates to nearly their lowest in the past half century to try to stave off an economic downturn.
Despite this, the pandemic’s global upheaval meant that home sellers and buyers were both tentative in the first months of the COVID-19 response. From March until May of 2020, home sales were relatively sluggish. Early lockdowns made touring homes more difficult and may have caused people vulnerable to severe coronavirus to avoid entering the housing market. Widespread financial uncertainty and unemployment accompanying the first waves of the pandemic may have also held back some buyers.
No Place Like Home
Running counter to this however, was the far greater amount of time people were spending at home. As our homes also had to fill the roles of office, school, and entertainment center, many people began to re-evaluate what they were looking for in their abode. The need for more space and distance from others contributed to activating the housing market in June. The early summer marked a spiked rise in home sales and new home construction. While urban real estate remained hot, suburban and rural properties also found a big boost as many people sought to spread out from urban centers.
Low interest rates spurred on demand, making home investments more accessible to buyers. With rates hovering around 3.1%, many people sought to take advantage of the economic climate and lock in low mortgage rates.
Supply and Demand
While demand began to increase sharply, the housing supply began to dry up leading to a very competitive market. Many properties saw unprecedented sale prices and bidding wars became commonplace as buyers vied for an edge. Part of this housing shift was caused by older homeowners and homeowners with preexisting medical conditions and vulnerabilities holding off on selling and relocating until after the danger of coronavirus has diminished. Upheaval within the construction industry also meant that new home construction prices began to rise and building materials were not always readily available. So while the market was rife with people shopping for their next home, the prices began to rise dramatically on available properties.
Over the span of one year, from February 2020 to February 2021, the number of available homes for sale in the U.S. fell by nearly a half, from over one million to less than 525,000. New home construction has conversely risen 76% over the course of the past year.
It is also undeniable that the pandemic has led to reduced income and financial precarity for many. The past year has seen the extension of protections and resources for homeowners facing pandemic-related financial hardship. An extended moratorium on foreclosures and expanded access to mortgage forbearance is seeking to keep people in their homes. Regardless of this, as protections for homeowners begin to expire, the market may see an influx of sellers seeking to avoid foreclosure, as well as pandemic-driven foreclosures.
The Year Ahead
The hot housing market isn’t showing any signs of reversing, though competitiveness may slow down with widespread vaccine rollout and rising interest rates. Although still low, mortgage loan rates seem on track to rise steadily in the next year as economic confidence grows. Increased rates alongside higher-than-average selling prices may lead to a drop off in the number of buyers.
Still, some of the lessons of the COVID-19 pandemic may shape spending habits for years to come. Many families have made permanent shifts to their needs and priorities, looking for more space, less population density and the potential for a home to fill multiple roles. Investing in the centrality of “home” may be here to stay.