The 2020 housing market boom sees the residential housing market valued at $35 trillion and lenders are enjoying record quarters going into the final half of 2020. Despite the housing market making a bold attempt to change from a buyer’s market to a seller’s market, there is no sign of demand slowing down.
What does this mean for the future of the housing market? What will happen if demand keeps outpacing supply and does this mean now is the time to buy or sell?
We take a look today at the reasons why the housing demand frenzy can’t and won’t continue for much longer. Join us to learn where the housing market is likely to go shortly.
Unsustainable Housing Market?
The good news is that despite the global economic recession brought on by the pandemic, the housing market is holding strong to a foundation of increased positive resolve in owning your own home in our society.
1. Median List Price Not Slowing Down Demand
The classic principle of supply vs demand is, for the most part, what dictates the housing market. Currently, the demand is much higher than supply pushing prices higher and higher.
August 2020 marked the 100th straight month of price increases and an impressive 6% price gain in only one month. Despite spiking prices more people than ever are looking to get their foot in the door, with new home sales surging by 55%. The last time the housing market was this hot was way back in 2005.
2. COVID-19 Pandemic Changes Everything
Several big factors push the housing market one way or another. Some of these are:
- Faith in US financial institutions (Wall Street)
- Political crisis (war, conflict, changing foreign policy)
- Financial speculation (IE the dot.com bubbles)
Now we can add pandemics to the list. There is no question that the COVID-19 pandemic has had its impact on the housing market – possibly changing it forever.
Social distancing is turning into a way of life for Americans. Where once housing prices were highest in areas “close to the action,” we are seeing demand for downtown properties lower and properties in new developments higher for the first time.
Homebuyers are questioning the need to buy property in crowded cities when living in the suburbs is seen as an increasingly safer, cheaper, and more attractive prospect. In short, location is less of a factor when shopping online is a long-standing trend and more and more Americans are working mostly from home instead of commuting to their jobs.
3. New Construction Slows
The pandemic has wreaked havoc on almost every industry including the construction industry. Contractors have been complaining of shortages in skilled labor for years, but lockdowns definitely didn’t help.
According to the Census Bureau, April 2020 saw the yearly housing construction starts decline by 29.7 percent to a mere 891,000 projected for 2020. Although a rebound in construction pushed by higher prices is expected in 2021, fewer houses being built means there are fewer houses on the market.
Less new houses entering the market will further fuel the rise in prices in 2020 and the first part of 2021. Eventually, demand will come down as prices creep out of reach for the average homebuyer, but there is no guarantee that there will not be another housing bubble on our hands.
Home sellers are likely going to want to ride the high demand and higher prices as long as possible. Mortgage rates are already at an all-time low so don’t expect the lenders to make it much easier for first-time homebuyers to afford the higher prices.
4. All-Time Low Mortgage Rates
The year 2020 brought with it economic anxiety as trade relations with China were strained. The economy shut down and strict lockdowns in most districts in the United States in response to COVID-19 also had a major impact.
All this anxiety and uncertainty pushed the banks and federally backed mortgage lenders to offer all-time low mortgage rates of 2.80% for a 30-year mortgage. This is nearly a full percentage point drop down from 3.78% in 2019.
Lower interest rates always increase demand in the housing market. In the case of unprecedented low mortgage rates, like we are seeing now, an entirely new demographic of Americans are suddenly able to afford to buy their home instead of renting.
Buying a home has never been easier with more investors cashing-in on buyers’ and sellers’ desire to make transactions quicker and more hassle-free than the traditional real estate agent business model.
5. The Onset of a Work-From-Home Economy
For millions of Americans, our home is also where we work. According to renowned Stanford economist, Nicholas Bloom, this up-ticking trend sparked by the stay at home orders in response to the deadly and highly contagious COVID-19 virus, is likely to continue long past the pandemic.
Not having to follow your job around makes the prospect of owning your own home a little less intimidating. One of the greatest disadvantages of buying a home is that it can be difficult to sell the home quickly if you need to move to another city like in the case of a new job in another city.
With companies all around the world being forced to consider and embrace employing their workforce from remote locations, homebuyers are starting to feel secure about committing to buying their home and home office as a package deal.
Maybe a Good Time to Sell
You know what they say in investing – buy low and sell high. With the housing market pushing prices higher than expected or predicted, it could very well be the best time to sell or refinance.
It is a good rule of thumb to keep your eye on the market and your home’s comparable valuation. Of course, the best time to sell is before home prices begin to fall which we believe will have to happen sooner than later.
Are you thinking about selling your home, but don’t want the hassle of working with a real estate agent and waiting months if not years to close the deal? We understand and would like to invite you to get a free fair cash offer and see for yourself how easy it is to sell your North Carolina home to Mike for cash quickly.