COVID Thumps.
Gupta 4/24 [Arnav; President of Capital Consulting Group; 4/24/2023; “Lasting Effects of COVID-19 on the National Housing Market”; Michigan Journal of Economics; https://sites.lsa.umich.edu/mje/2023/04/24/lasting-effects-of-covid-19-on-the-national-housing-market/; accessed 7/1/2023; Lowell-WN]
In recent years, marked by the infamous COVID-19 pandemic, the housing market has experienced major turbulence due to a combination of fluctuating interest rates, variations in demand and supply, among other factors.
A combination of very high demand and extremely low supply made home prices skyrocket. At the start of the pandemic, the American economy was thrown into a recession, which caused low mortgage rates (Demsas). That, combined with higher demand for real estate to house at-home workers rapidly raised housing demand. However, supply was still low. Development was happening slower if at all. These prices made it simply too expensive to purchase a home during the pandemic.
As this happened, a lot of buyers started to leave the housing market, in an attempt to wait for a cooldown. This brought mortgage rates back up, and led to many overpriced sales.
The market is now starting to shift. Buyers are starting to come back, and mortgage rates have started to go down again. These are promising signs, as stagnation in home price growth is increasing buyers’ purchasing power. However, there are some factors to be taken into consideration.
The supply of housing is still low, and even though prices are starting to go down, low supply is slowing the rate of price decline. The change in prices is largely dependent on mortgage rates.
As we go into April, the median price of existing homes is down by 0.2%, a change in pattern from 131 straight months of increases in home prices. February also saw a 9.8% increase in home starts, adding to the overall supply (Rothstein).
The main concern still revolves around overall supply of homes, which is still at a historic low. On top of that, 70% of homeowners have a mortgage rate of 4% or less, reducing the likelihood of homes being added to the resale market.
There is no housing market crash expected, regardless of all the circulating rumors (Ostrowski). For one, housing inventory still remains very low. This means that buyers are left with little choice but to pay premiums on homes. For the most part, renting will be cheaper this year than owning a home.