Factors Driving the Real Estate Market Despite the Pandemic
Over the last few months, the real estate market has surprisingly done exceptionally well despite our ongoing battle with the virus. There are a number of factors that cause the real estate market to see an increase in prices and availability.
The real estate market plays an important role in our economy and it is a large indicator of where our economy is going.
According to CNBC, “U.S. single-family homebuilding surged in September, cementing the housing market’s status as the star of the economic recovery, thanks to record-low interest rates and migration to the suburbs and low-density areas as Americans seek more room for home offices and schooling.”
The housing market determines for many homeowners and investors how much they are going to be paying. If you own a home, the prices affect the overall net worth of your home.
As a real estate broker myself, the industry personally hits home and the factors in which change the current market today are unpredictable given the previous recessions.
As an indicator of the economy, it is crucial to understand the factors that drive the real estate market.
According to Fortune, “The 2020 housing market stands in stark contrast to previous economic recessions, as the COVID-19 pandemic and working from home have defined much of the market demand this year.”
As many people are given the new option to work from home this year, the demand for properties has reached an all-time high. People are flocking for more space and to be far away from the big cities as they can.
Interest rates are a major factor that drives the real estate market. Low-interest rates increase the demand for properties as mortgage rates become more affordable. However, low-interest rates increase the prices and demand for properties substantially.
According to CNBC, “Housing starts increased 1.9% to a seasonally adjusted annual rate of 1.415 million units last month.”
As the interest rate decreases, so does the mortgage rate. As the mortgage rates decreasing the more affordable it is for buyers. This is appealing for homeowners looking to look for more space or buyers looking to pay less in their mortgage.
The interest rate affects the supply and demand as it dictates the direction of the housing market. As the pandemic has shifted the economic climate, it has worsened the housing shortage.
While some are interested in relocating for more space, many have canceled their plans of selling their home as the virus has made sellers anxious to have buyers tour their homes.
The more houses available the less competition there is and the fewer houses available the more competition there is for other homebuyers. It is then divided into a buyers market or a seller’s market.
The competition is delaying buyers in looking for their dream homes as the current supply is selling in less than 15 days for at least the state of Nevada.
A seller’s market is when the demand for properties is high and sellers can wait for offers that exceed their initial selling price. A buyer’s market is when the demand for properties is low and buyers can then negotiate a price usually lower than the initial price.
The overall economy has an effect on the real estate market. Usually, in a slow economy, real estate is the most affected. However, surprisingly some states are finding resiliency despite the pandemic.
According to housingwire.com, “Boston was ranked the most resilient U.S. city with numerous prestigious universities and hospitals among its top employers.”
States focused on tourism and hospitality will show less resiliency as they have been hit the hardest in unemployment.
As we currently still have 25.3 million on unemployment as of October it affects low-wage workers looking to purchase a home. “Unemployment disproportionately affected low wage workers, who are typically young and renters.” As some industries were more affected than others, the current state of the real estate market is good and bad for others.
Another factor is the government policies and subsidies that impact property demand and prices. “Tax credits, deductions, and subsidies are some of the ways the government can temporarily boost demand for real estate for as long as they are in place,” stated Investopedia.com.
Local trends are varying between each state while some doing better than most.
2020 has changed many habits for a lot of people. Since the start of the pandemic new buyers are using their homes for work, teaching, and as a gym more individuals are finding their home doesn’t meet their needs anymore.
The pandemic continues to alter the housing market. The current stability of the housing market has shocked many but it is important to track how it’ll change within the new year.