2020 has wreaked havoc, doom, and gloom on all our lives, and it seems there is never any good news to report. And yet, the economy has a bright spot: housing. A surprising benefactor of the global pandemic, the U.S. housing market is hot. We aren’t talking 2009, right-before-a-housing-crash-with-underwater-mortgages hot. We are talking about a market so hot that we can’t see the end in 2021. The supply is not there. We are not in bubble territory.
Homebuyers are putting in repeat bids, and houses go under contract in a few days’ time. Homebuilders are having to renegotiate contracts as prices of materials keep rising. The entire home-buying process is taking less time. In the list of 2020’s scarcity, you can put housing in the category of toilet paper, Clorox wipes, and corn. There’s not enough.
What led us here? Allow us to explain.
Lockdowns Led Way to Renovations
“40 days to slow the spread” meant 40 days for homeowners to think. They worked on expanding their deck, remodeling the kitchen, or moving to a larger house. Renters wanted out of apartments and entered the market. Millennials got out of their parents’ basements to find houses of their own. Wealthy Americans purchased second homes in resort towns where they could work from home with a view. Workers in high-rise city offices moved to work remotely in more affordable suburbs. The housing market went crazy. Bidding wars and skyrocketing prices ensued.
High Demand with a Low Supply of Homes
Here’s the ticker: before COVID-19 fueled the housing frenzy, we were already seeing scarcity in the market. Homebuilding has been slow for the past decade. The housing bubble of 2009 made builders warier. Millennials saw the effects of the bubble and mortgage crisis and said, “no thanks” to homeownership.
Healthy markets see a seven-month housing supply to accommodate its residents. Cities like Austin have a one-month supply. Contributing to the massive supply shortage are first-time homebuyers. When current homeowners buy a new home, they sell their current home. This keeps a balance of supply and demand in the markets. When first-time homebuyers enter the market, they create scarcity, as they are not contributing to supply, only demand. Add in the sheer volume we are seeing in first-time buyers today, and we have a supply-and-demand problem.
Low Mortgage Rates Make It Easier to Buy
When mortgage rates are as low as 2.75% for a 30-year fixed, homebuyers can buy larger, more expensive homes. They can also get these homes with a note that is the same or less than their current note. The Fed has made home-buying affordable, and Americans are taking advantage.
Lockdowns, pent-up demand, low supply, and historically low mortgage rates are all to thank for this red-hot housing market we are seeing. Housing is generally an indicator of economic health and stability. This is great news for all Americans, regardless of homeownership.
Buying a new home typically means consumers are also buying furniture and appliances. They use contractors to paint, fix, remodel, and upgrade. Talking heads on news shows tell us the sky is falling with the economy. Before you buy what they’re selling, take another look at the housing market. It just so happens that not everything in 2020 is full of doom and gloom.
–Amanda M. Vincent