The worldwide pandemic brought a multitude of surprises along with it. And its effect on the housing market might be the most surprising of them all. While experts held their breath for the anticipated crash to hit, the exact opposite happened.
Couple low-interest rates with newly made remote workers looking to escape city life, and suddenly, everyone wanted to buy property. Because of this, house prices began to soar. With prices skyrocketing if you happened to be in a desirable location.
The U.S. housing market has been setting breakneck speeds so far during this pandemic. And there hasn’t been any signal of it slowing down or cooling off. But experts think that there’s a shift in the market, and we may start to see normality reign again.
Image by RODNAE Productions via Pexels
What’s Been Happening?
So much has happened in the housing market over the last 18 months that it can be hard to keep track. But what’s the breakdown?
Surge In Demand
While a crash was initially expected when the pandemic hit, the housing market made a u-turn. The demand for houses increased and put pressure on a market already experiencing a certain amount of home shortages.
Low mortgage rates prompted buyers on the fence to take the plunge and search for new accommodation. The influx of workers doing their jobs from the comfort of their homes increased too. And this made Americans reconsider where they lived. In a bid to escape cities and growing Covid numbers, many people took this as a sign to relocate. And more desirable locations saw people house-hunting from far and wide to get a slice of their life.
A Sharp Rise In House Prices
Thanks to the new interest in the housing market, prices reacted by surging. Compared with June 2020, by June 2021, house prices had increased by 17.2%. And in that market, more than 50% of homes fetched prices above their initial asking price.
The prices were a reaction to the increase in demand. And everyone trying to make the most of low mortgage rates as the government tried to keep the financial markets liquid didn’t help the situation. In Idaho, home prices grew 46% between February 2020 and June 2021.
Home Shortages
The high demand that Covid unexpectedly brought put more pressure on a housing market that was already low on houses. By April, the inventory of homes in the country was down 53% compared with the previous year.
It would be correct to assume that people would turn to a home builder with already built houses in short supply. But the house building market has been hit by the pandemic too. As a result, housing starts dropped 7% in June even after reaching record highs in March.
The surge in house prices is partly to blame as it’s left prospective house builders thinking that now might not be the greatest time to purchase a new home. Even though the demand for houses far outstripped the supply and building more could be the answer. Yet, issues with supply constraints have left the house building sector stumbling.
What Can We Expect In The Future?
There seems to be a positive change in the housing market, though. Pending sales are falling as people reconsider buying property now. And the slow fall in demand seems to be leading to a fall in median house prices too. Property prices are still high – up by just over 10% compared to the previous year – but that price rate growth is showing signs of slowing.
The number of unsold homes rising also means that the market is looking healthier regarding inventory. Of course, this still doesn’t satisfy the demand for homes, but it does give buyers some hope that more options to choose from are becoming available.
But the unnatural boost to the housing market hasn’t been bad news for everyone. For some states that were still recovering from the 2008 crash, the rise in prices and demand has helped them reach a happier median in their house markets.
While all the evidence doesn’t point to prices dropping any time soon, it does look like demand will slow. Demand is slowing mostly due to shoppers being more reluctant to pay the higher costs, and they’re becoming more discerning with their cash. As a result, less demand leads to a bigger housing inventory and more opportunities for buyers on the market.
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