It’s a great time to be a seller. Home prices are skyrocketing and homes are sold within hours of being listed–sometimes sight-unseen. Bidding wars have desperate buyers offering above the asking price, many times with no contingencies. But if Covid-19 caused a recession across the country, why (and how) is the post-Covid real estate market soaring?
Investors and real estate agents need to understand the “why” behind the high home values and hot market. This knowledge will help you make smarter financial decisions and help your clients make their next steps with confidence. Here are a few things you need to know about why the post-Covid real estate market continues to soar, and what it means for buyers (and sellers) in the year to come.
How Covid Impacted Supply and Demand
Home prices typically depend on the number of homes in the market (supply) and the number of buyers in the market (demand). But it’s not that simple. Other factors that play a role in home pricing include the age and condition of the home, its location, any upgrades, the local market and interest rates to name just a few factors.
To best understand the current market, you have to look at the data. Here are some of the important facts and figures that contribute to this sudden and steady increase in home prices:
- In November 2020, housing prices rose 9.5 percent from the previous year.
- At the end of 2019, the average home was worth around $245,000. The median home price now is $266,000, according to Zillow.
- At the end of April, there were only 1.16 million houses for sale in the U.S. down 20.5% from the year before.
- The 30-year fixed mortgage rate is hovering near a 50-year low, making it easier for first-time homebuyers to afford a mortgage.
Real Estate Supply Tanked in 2020
Economics 101 teaches us that when there is a low supply of something, the price will increase. Covid drastically lowered the number of homes available on the market, which caused the home values of existing homes to soar. Many people were reluctant to put their homes up for sale before they knew how Covid was going to impact their job, their financial situation, and their health. Many owners who had their homes on their market decided not to sell.
And in a time when people are trying to follow social distancing guidelines, the idea of having strangers parade through the homes made many uncomfortable. Owners didn’t want to host showings, schedule maintenance, hire photographers, or even real estate agents to come into their space.
All of these factors played a significant part in the lowered supply of homes for sale in 2020, combined with the fact that fewer homes were being built even before the pandemic.
Demand Shot Through the Roof
The magic in a healthy real estate market happens when demand is high and supply is low. During the pandemic, people spent a lot more time at home, and thousands transitioned to working (and schooling) at home. Now, buyers are hyper-intentional about having a home that works for them, which means more space and more amenities. Many homebuyers are looking for a home with a home office or other project space.
Those who are working remotely or running their own businesses are no longer restricted to homes close to city centers or their offices. This increases the number of people who are moving to the suburbs, looking for features like big yards and multi-purpose spaces for work, school, and hobbies. The increased demand for single-family homes, along with the limited supply of homes, is a recipe for soaring home values.
Let’s also think about who is doing the demanding. First-time homeowners and those buying a second home or vacation home have entered the market, and neither of them are putting a house up for sale as they buy one. This dynamic increases demand without increasing supply.
When mortgage rates fell significantly in 2020, it made it a lot easier for first-time homeowners to afford to buy a home. In January, mortgage rates hit their lowest points at 2.65%, but by March they were climbing up again. Experts expect mortgage rates to stay in the 3% range until the end of the year, and many encourage buyers to act fast before the rates start to increase again.
It’s simple and complicated at the same time: Home prices are rising because more people want homes than there are homes for sale. Covid has changed buyer preferences and made sellers more hesitant to show their homes. Navigating a seller’s market can be a challenge in normal circumstances, let alone a year after a global pandemic.
One of the best ways to serve your clients during this time is to immerse yourself in continued education. Read the books, listen to the podcasts, take the classes. Stay ahead of the game by investing in Mbition’s online courses and classes that are designed to help new and seasoned agents connect with the solutions they need.