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Why is the Housing Market Booming in the Pandemic?

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Man putting for sale sign in front of house in hot housing market
Young bearded father placing For sale sign into ground near house while putting house up for sale

America just recorded the highest median home listing price ever. In September, prices were 11.1% over last year. This housing market boom defies economic logic. We’re still fighting a pandemic. The unemployment rate is still a high 7.9%. The economy is still in a slump. Back in April, nobody was predicting this. 

Amanda Marchesello, a real-estate broker in Florida, explained that when the pandemic hit, the housing market went to a stand still. Even the banks went on pause. This all changed in May or June, she said. Then it seemed as if everybody wanted to buy a house. 

Demand is High; Supply is Low

Demand is high, but the supply of houses on the market has hit historic lows. The national inventory of house available to buy is 39.0% smaller than last year. 

The lack of supply and strong demand has made buyers aggressive, Marchesello explained. “I have a girlfriend who lives in the Hamptons. Her house is not for sale. She’s gotten two offers on it. And another girl in Grand Rapids, Michigan, who is a really close friend, again, her house is not on the market. She’s got offers. She’s now thinking about selling for the first time.”

Prices are going up. She said that her own home has gone up $200,000 since February, which she said is insane. It is hard to find a house for $400,000 in her area now. She and her husband have been looking for income property in Tennessee, Texas, out in North Carolina, to Michigan. There’s nothing she wants under $500,000. She just can’t find them.

Housing Market Prices Are Up by 10 Percent

James Apfel, an account executive with Quicken Loans in Detroit, shared a similar sentiment. He is shocked by the number of people buying homes. He thought the numbers would fall 10 or 20%. Instead, the housing market has gone in the opposite direction. Values have gone up by 10%. It was not expected. 

“I think the reason why we’re not really seeing too much of a decrease in the housing market is because everyone has it in back of their mind that we’re going to get out of this. It’s not a question of if; it’s more of a when… Once we get out of it, businesses are going to be hiring. Everyone wants to get ramped back up to where we were. Covid put everything on hold. I think there’s a lot of optimism.”

Apfel didn’t think the present housing price increases reflect a bubble like in 2008. Then, the mortgage delinquency rate was a high of 10%. Apfel explained that there was a forbearance scare in 2020, but it didn’t hit as hard as they had anticipated. In the second quarter of 2020, the mortgage delinquency rate was 2.47%

“It seems from what I’m gathering, just from my personal experience, people are a little bit more fiscally responsible. I think after 2008 we all kind of went through a structured bankruptcy, and we kind of learned some things.” People are more prepared and able to persevere more, he added. 

Covid Is Not a Man-Made Problem

He also explained how this period we’re in right now is unique. Before Covid, the economy was growing and growing. Covid was not a man-made problem like the 2008 crisis. It was caused by nature.

“It’s weird, because especially when things are going down, the only way to really spur money or get the economy going is people need to spend money. That’s just how the American economy works. When we stop spending money, that’s when we run into our economic issues.  I don’t think we saw that spending stop.”

The government has certainly helped with monetary policies by promoting low interest rates. According to an interview with NPR, Federal Reserve Chairman Jerome Powell has said that the interest rates will likely stay low for a long time, which has affected mortgage rates.

Mortgage Rate Impact

Mortgage rates are a huge motivator, Marchesello explained. The difference between 3.5% and 3% changes a lot about the payment. The purchase price is much less important than how much you are paying per month and how much is going into equity. 

“After that second wave of funds happened from the government, people took a deep breath, I thought. That’s also when I think the rates really were low and they stayed low, which is really, really cool. If you talk to people who bought homes, you know, ten plus years ago and they’re talking about 8%, 10%, I mean, that blows your mind, right? In our generation where we didn’t really know it like that. But we’re kind of used to the 4%, I would say, maybe 3.8 or something. So to get a 3, 3.3, 3.5 is okay. That’s cool. That is also a huge motivator but not just a motivator, more of a hurry up and do it now sort of feeling.”

Marchesello explained that she’s also been seeing more creative financing being allowed by the banks. Two or three years ago she had a difficult time getting self-employed people to qualify for loans. They had a lot of cash in the bank and made a lot of money, but the banks weren’t lending them money. Now, though, she’s seeing a lot more bank-statement-only loans, which refers to loans where only the bank statement is used, not a W-2. Self-employed people are getting the loans. 

However, looser financing and low interest rates are only part of the picture. 

Home Prices Don’t Match Rent

Housing price increases are not being reflected with similar increases in apartment prices. National apartment prices have registered a cumulative decline of 1.4% over the last year. This change is sluggish when compared to previous years, which normally recorded a 1-3% increase in prices during these months, which suggests that people may be moving out of their apartments. 

The pandemic appears to be creating permanent shifts in our economy. According to the U.S. Bureau of Labor, in May of 2020, 24.3% of America’s total workforce was teleworking. However, for professional and related occupations, this number moved to 42.3% and for people working in management, 42.6%. Much of the white-collar workforce was working from home, and this sector traditionally has more money. 

For decades workers were expected to work from the office. With the pandemic still around, though, the number of workers teleworking may stay for a long time. Many jobs may never return to the office. That companies may allow employees to work from home permanently is a huge paradigm shift, and it gives workers new freedom to choose where to live. 

Reasons For Rise in Demand

Marchesello talked about three more reasons for the rise in demand for houses. First, people are bored, and when they are bored, they buy stuff and make life changes. Then they are also realizing that their home might be all they have for a year or even longer because of the pandemic. 

“If I was living in this tiny little condo because it was a cool spot downtown, but nothing’s open; I don’t go anywhere, and I’m just in this little 900 square-foot right now. I don’t like it, so I want a house. I want land. I want nature. I want amenities. So people were making these changes, and then the third thing happened, especially in California, where people were living in San Francisco paying these astronomical prices because they had these big jobs and these offices they had to go to. Well, they no longer had to go to the office, so now it was like, wow, I don’t have to be anywhere. So, where do I really want to be? The majority of America had never had that opportunity to really ask themselves that question because it was always dictated by job, family, things like this. But when it really is just you and your immediate family in your four walls, you get to create that in a way that makes you happy because it’s all you have.”

Marchesello says the pandemic is reminding people about what’s really important in life. It is also making us more self-sufficient. She used to go to gym classes. She can’t now, but luckily she has a private gym at her house. Good homes give people that ability to be more self-sufficient.

“I like to imagine it may now be just really competitive and I would say it’s definitely a seller’s market. But again, the buyers are getting what they call for, which is their perfect lifestyle.”

The perfect home, though, is undeniably getting more expensive in this housing market.

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