Read any real estate article these days and it will most likely discuss how strong the real estate market is right now. Why is the market so hot right now though? After all, many believed that housing would take a back seat as the country grappled with a novel pandemic spreading across the land?
A historically low inventory of homes for sale, rising prices, and a shortage of affordable housing are just some of the contributing factors to the current market. At the beginning of the pandemic, we also saw a frenzy of people leaving multi-family units in the big cities in search of single-family homes in the suburbs that offered plenty of social distancing space. Add in historically low mortgage interest rates and you have a recipe for a frenzy.
Housing shortage was evident before the pandemic
As the pandemic took hold across the country, this led to many would-be sellers to hold off on listing their homes for sale. Not surprisingly, most of these sellers were fearful of having prospective buyers enter their homes thus leading to greater potential exposure to COVID-19. While this was certainly a contributing factor to the inventory constraints, many experts say the U.S. housing market was already being roiled by forces fueling the current housing-price explosion even before the pandemic.
According to Matthew Murphy at New York University’s Furman Center for Real Estate & Urban Policy, supply shortages were evident heading into the pandemic, adding that “the context here to this current housing moment is that we were still recovering from the 2008-2009 foreclosure crisis.”
Another contributing factor highlighted by the National Association of Realtors is the under building gap of between 5.5 and 6.8 million housing units since 2001. Not surprisingly, this under building gap has been most evident in the affordable housing market. According to the National Association of Home Builders, none of the new single-family homes built across the United States in 2020 were priced under $100,000. In addition, just 1% of homes built fell in the range of $100,000 to $150,000. Needless to say, first-time home buyers have felt this hit the hardest.
Moving forward it will be interesting to see what happens in this market. It is largely expected that mortgage rates will increase and therefore price out more potential buyers in the market. Although the continued price appreciation can not be sustained forever, many believe that home values will instead reach a more moderate growth pattern or even plateau for some time.
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