America’s housing market faced a surprising upward trend in sales during the COVID-19 pandemic. Existing home sales in 2020 were the highest since 2006, and in December 2020, closed sales were 22% stronger than the previous year.
Despite a weaker economy and soaring unemployment rates, house hunters across the country are swooping in to purchase real estate. Although health concerns and stay-at-home orders led to fewer buyers and sellers in the early spring of 2020, home sales quickly rebounded in the summer.
So, what caused the surprising increase in housing demand?
Record low mortgage rates
At the onset of the pandemic in March 2020, the 30-year fixed-rate mortgage rate was at 3.45% and went down to 2.87% in July.
The tricky thing about mortgage rates is how they can quickly increase one day and drop back to record lows the next day. While today’s mortgage interest rates are still low, real estate experts predict that mortgage and refinance rates will grow gradually by the end of 2021 as the economy continues to bounce back.
This means those buyers and homeowners who have yet to refinance still have a chance to secure exceptionally low mortgage rates.
Increased time at home
On the demand side, COVID-19 forced families and individuals to spend more time at home. This, alongside lower interest rates, likely increased the demand for housing services and attracted more buyers into the market.
Pandemic supply constraints
While housing sales grew exponentially during the pandemic, listings were at a record low. The National Association of Realtors reports an underbuilding gap of nearly 5.5 million units over the last 20 years.
The Urban Institute also reports that by the end of 2020, there were only 2.5 months of housing supply left. With demand continuously increasing, the inventory of homes nationwide will be depleted in just a few months. This threatens the opportunity for homeownership for many households.
The shrinkage of supply also resulted in a rapid price hike. According to the S&P CoreLogic Case-Shiller National Home Price NSA Index, housing prices in November 2020 grew 9.5% from the previous year. In June 2021, the median price for an existing home sat at $363,000, nearly a 23.4% year-over-year increase. With the housing demand of the past year at a record high combined with a historically low housing supply, prices of available properties continue to rise.
What this means for buyers and sellers
As demand surpasses supply and home prices keep hitting record highs, sellers are at an advantage. Fewer available properties often lead to bidding wars where buyers will drive up prices typically above the seller’s initial quote. With buyers willing to pay more than in normal circumstances, sellers can also increase their asking prices. At the same time, as competition grows, aspiring homeowners have less power to negotiate and are more inclined to accept “as-is” offers.
For buyers, low mortgage rates offer real savings and make entry to homeownership easier. With interest rates hitting an all time low throughout the pandemic and the work from home model is set to become the new norm, there may never be a better time to purchase your dream property.
During times of uncertainty, it’s critical to have a real estate broker on your side. Whether you’re buying or selling a home, Blue Pacific Real Estate can help you meet your goals.
A leading residential and commercial real estate brokerage firm, we specialize in brokerage, general contracting, property development, and professional home staging. Our team will be happy to share property values, market insights, and demographic data to help you maximize your investment.
Contact us and secure real estate deals with confidence.