The Housing Market and COVID-19
Dear Rich Lifer,
Coronavirus has changed so many things about the world that sometimes it’s hard to remember what life was like back in the comfort of 2019.
We have grown accustomed to many things, from wearing masks to waiting in lines at grocery stores to having an ever-present supply of hand sanitizer to dining outdoors on previously busy city streets.
While it may be hard to believe that things are still changing, they are.
The real estate market is something that has changed and continues to change, as the months of the pandemic go by.
We have seen the mass exodus from people living in big cities like New York City or Chicago as they seek to escape to the comforts of the suburbs with more space and lower costs — especially as the “work from home” reality extends into the Winter.
However, this migration has been met with a problem — there aren’t enough houses for sale.
Since the pandemic began, interest in real estate properties has dropped exponentially. We’re seeing record-low mortgage rates across the country as demand increases.
But with all this demand we are also seeing a shortage.
Even with developers working on new buildings, it will take time to restore the supply to meet the demand.
Housing inventory has never been lower.
According to the National Association of Realtors (NAR), at the end of July, there were 1.3 million single-family existing homes for sale, the lowest number for any July going back to 1982.
In the week ending on September 12, total for-sale inventory was down 29.4% from a year earlier, the lowest level since at least late 2017, Zillow Group Inc. said.
The shortage has pushed home prices higher resulting in many middle-class and first-time homebuyers having to stretch already thin budgets.
In fact, the median sales price of an existing home in August was $310,600, 11.4% higher than in the same month last year.
Why Sellers Hesitate
There are many reasons why prospective sellers are cautious about selling their homes.
Many are worried about the exposure to coronavirus that could potentially come with letting strangers enter their homes for open houses.
Others are simply delaying their plans to move all together due to the pandemic and fears of a possible second wave later this year.
Homeowners are also holding off for fear of not qualifying for a new mortgage due to a change in employment or income.
Families who thought they would be “empty nesters” are not having to deal with their adult children moving back home due to colleges shutting down campuses or job losses.
Ultralow interest rates are drawing buyers into the market, but they are also offering potential sellers another incentive to stay put. Freddie Mac reports that the average rate on a 30-year fixed-rate mortgage rose to 2.87% last week, holding near record lows.
Some are worried about finding a new home due to the current shortage of houses on the market.
Although these seem like many reasons to stay put, the plus side of selling is that with so much demand and a low inventory, owners are bound to make a quick sale and a higher profit.
In August, it seemed like some buyers were finally catching onto this trend and selling their homes like hot cakes…
Are Sales Rebounding?
Sales of previously owned homes rose 2.4% from a month earlier to a seasonally adjusted annual rate of six million, the NAR said Tuesday.
This is the third consecutive month that we have seen a rise in home sales.
The pace of sales is also increasing. In August, the average number of days a home sat on the market before selling was 22, down from 31 a year earlier.
Economists and housing experts expect sales to stay strong through the end of the year.
A lot of this boom is due to The Fed holding interest rates near zero, with no plan to raise them for at least three more years.
Mortgage rates are also at rarely-before-seen lows. As of September 17, the average interest rate on a 30-year fixed-rate mortgage was 2.87%, according to Freddie Mac.
This is all good news for the U.S. economy which has struggled and fluctuated since the beginning of the pandemic in March.
The rise in sales in the housing market is a show of strength and also results in consumers spending more money on things like renovations and home goods.
Luxury Sales Lead the Market
On an annual basis, sales rose 10.5% in August, putting this summer’s housing market well ahead of last year’s sales levels.
The increase in sales was most noticeable at the upper end of the market. Sales of homes priced at more than $1 million rose 44% nationally.
This rise in luxury housing is due mostly to wealthier families seeking the maximum amount of room to restructure their both their work from home set up and their at-home learning set up, with many children not going back to a physical school.
Smart sellers are taking advantage of the demand for homes, selling at higher prices, and then putting that profit right back into buying a larger, more expensive home.
Unfortunately, the lower-priced sector of the housing market is not reaping the same benefits as the luxury housing.
Sales of homes priced at less than $100,000 fell more than 20% compared with a year earlier, according to NAR. And sales of homes priced $100,000 to $250,000 fell 8.9%.
Another sector taking a big hit is commercial real estate.
Derek Hamilton, Ivy Investments global economist, said, “There will likely be less demand for commercial real estate due to the rising popularity of online shopping and working from home.”
Hotels, office space owners, specialty store owners, and malls are all struggling.
However, some commercial spaces such as grocery stores, pharmacies, and takeout friendly restaurants have been able to weather the storm.
Things are changing every day, but it is clear that this demand for housing will not last forever. So whether this is a year-long window, a three-year-long window, or a short opportunity window, there is clearly an opportunity here to capitalize as a seller in certain sectors of the real estate market.
To A Richer Life,
The Rich Life Roadmap Team