How the COVID-19 Pandemic Shaped the US Housing Market
The extraordinary events of the last two years make it easy to forget that the housing market was sizzling before the coronavirus ever made landfall. The millennials — America’s largest living generation — were nearing the apex of their prime homebuying years in 2019. A lumber shortage was making building materials expensive and hard to come by, interest rates were low, and new construction had been insufficient for years.
“The U.S. real estate market was flying high pre-COVID,” said Chuck Vander Stelt, real estate agent and founder of Quadwalls. “The arrival of the pandemic engaged the afterburners.”
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Home prices soared by nearly 19% in 2021 — the fastest growth in history — and so far in 2022, the sky is still the limit.
Here’s a look back at how things got to where they are today — and how the pandemic played a role every step of the way.
America’s first coronavirus death was recorded in Seattle on the last day of February 2020, according to the New Yorker. Hotspots soon emerged in New York and other international urban centers. Suddenly, city living was nothing to aspire to, and the real estate market braced for a mass migration out of the country’s most densely populated metros.
Tomas Satas, founder and CEO of Windy City HomeBuyer, experienced firsthand how the panic in the industry didn’t always line up with the realities on the ground.
“The overall doomsday moving trend in Chicago during the pandemic was quite overblown from what I have seen,” Satas said. “Chicago is mostly the same place it was before as the light at the end of the pandemic grows brighter. The population of the Chicago metro area increased in 2020 and so far this year while the city itself saw yet another minimal decrease.”
Today’s record-high home prices cannot be traced to any one factor, but the original shutdowns — right at the start of the 2020 spring buying season — were the catalyst that set the spark for the wild two years that would follow.
“The initial stay-at-home order caused most people to halt their house-hunting process, causing a drastic dip in home sales,” said Kenneth Reed, a real estate investor at Better Home Buyers. “The selling process also stopped. Adding on the stoppage of new home construction, there was a significant drop in home supplies. All of these led to the prices of homes currently on the market skyrocketing.”
When America’s offices closed, housing prices rose even higher as a crush of new telecommuters now had the freedom to abandon their pricey metros. Much has been written about that, but what’s less known is how the moment facilitated a shift to a cash market — and that dynamic still remains in play today.
“Some new markets have seen a recent influx of cash offers driven by remote workers relocating from expensive cities like New York and San Francisco to relatively affordable metros,” said Vanessa Famulener, president of HomeLight Homes. “A majority 58% of real estate agents expect the cash offers to grow in popularity beyond the 2021 housing market craze, as sellers now have greater expectations for convenience, speed, and certainty.”
Policymakers slashed interest rates to encourage borrowing and jumpstart the COVID-19 economy. In January 2021, the rate for a 30-year fixed mortgage hit 2.65% — the lowest in history. That, of course, flooded an already tight market with new buyers, but it also might have prevented new inventory from ever getting listed.
“The new rates had a lot of sellers taking advantage and refinancing their homes,” said Bill Samuel of Blue Ladder Development. “We know for certain that many sellers never came back to the market to sell as the number of homes for sale is still very low. I believe the new record low interest rates incentivized many homeowners to hang onto their homes versus sell them.”
Vaccine Rollouts Let Real Estate Pros Get Back To Work for Real
The arrival of safe and effective vaccines at the tail end of 2020 brought relief that the country and the world had been dreaming of for months — but few people were happier than America’s real estate professionals.
“The rollout of vaccines allowed us more flexibility with showings,” said Jorge Sariego, founder and CEO of Boston One Realty. “We went from handling a lot of showings virtually and closing deals by waving at a screen. In rare cases, we held select 1:1 tours without a congratulatory handshake or hug with a long-standing client. Vaccines provided peace of mind as we continued to enforce health protocols and precautions with smaller crowds.”
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