In March, as life all but came to a screeching halt due to the COVID-19 pandemic, many real estate professionals held their collective breath and waited for catastrophe. However, despite doomsday predictions from some experts, home buying remains strong. In fact, home sales are trending to beat last year’s numbers, even amid the worst pandemic we have experienced in a century.
For real estate agents, homeowners, and home buyers, this is unexpected good news. Though many Realtors and other real estate professionals braced themselves for a disastrous year, most markets have seen the exact opposite. But will this upward trend continue into 2021?
Home Buying Pre-Pandemic
Some days, it’s difficult to remember life before COVID-19. But if we look back to 2019, home sales were going strong.
According to the National Association of Realtors, home sales rose steadily from 2009-2019. During that period, sales of existing homes topped out at 5.51 million in 2017, up from just over 4 million in 2009. However, 2019 still saw 5.34 million home sales nationwide, pointing to an encouraging real estate market.
Similarly, home prices continued to rise in the pre-pandemic housing market. As the economy recovered from the recession of 2008-2009, housing availability fell, leading to increased home prices. Real estate is a supply and demand market, and as of 2019, inventory was the lowest this country has seen in years.
Heading into 2020, we saw increasing home prices, low inventory, and record sales across most of the country. The top markets – particularly those in the West and the South – saw even higher sales rates and price increases.
The bottom line: before the pandemic, life was good for home buyers, home sellers, and real estate professionals.
The Pandemic and Real Estate Predictions
In January and February, as COVID-19 began to spread across Asia and Europe, American markets remained mostly unchanged. Q1 home sales remained strong, and home prices increased in 96% of all markets nationwide.
However, in March, the virus made its way to American soil, and everything changed.
As cities instituted mandatory shutdowns and unemployment began to rise, panic set in. The real estate sector began predicting massive downturns in home sales. Many financial experts predicted an economic crisis not seen since the recession.
In March and April, home sales plummeted by nearly 8.5% compared to just one month before the pandemic hit. The National Association of Realtors predicted a 30-40% drop in home sales in the coming months. Both homeowners and real estate agents braced for impact, expecting a devastating year for the industry.
Summer Home Sales Heat Up
As spring turned to fall, many cities began to see a decrease in COVID-19 cases. Many hotspots, like New York City and Seattle, slowly relaxed restrictions. Across the nation, businesses began to reopen, and the economy started moving again.
Because of the delayed reopening, many home sellers and homebuyers waited until summer to list or buy homes. Therefore, Realtor.com reports, August saw a spike in home sales across the country.
Typically, spring is the busiest month for home buying. But with the pandemic delaying our everyday lives, real estate activities slowed during this period as well. However, summer 2020 suddenly became a beehive of real estate activity, with Realtors showing homes non-stop.
Inventory is down, prices are up, and home sales remain strong despite the high unemployment numbers. Sales in June and July reached the highest rates since 2006.
Why Home Buying Has Increased
For some, the rush to purchase houses doesn’t make sense. After all, the pandemic led many businesses to shutter their doors. Unemployment reached a devastating 14.7% in April, the highest rate since the Great Depression. And even though those numbers have improved, nearly 8% of American workers remain unemployed as of this writing.
Still, despite the high unemployment rates, home buying has exploded. Why?
On March 27, Congress passed a bipartisan relief bill known as the CARES Act. This $2 trillion spending package provided relief for small businesses, local governments, and individual citizens, helping to prevent to most devastating economic impacts.
Through the CARES Act, most Americans received a check for $1200 per adult, plus up to $500 per dependent child under the age of 17. This payment helped those families struggling to make ends meet because of job loss or business slowdowns. But for Americans who didn’t lose their jobs, this economic stimulus represented an opportunity to put a down payment on a home.
Low Interest Rates
In addition to a sudden influx of income, the Federal Reserve slashed interest rates during the pandemic. Consequently, many mortgage lenders lowered their rates in turn.
As of this writing, many lenders are offering sub-3% interest rates on 30-year loans and below 2.5% for 15-year loans for well-qualified buyers. Those rates put home buying in reach for many populations who couldn’t afford homeownership just a year ago.
For instance, millennials who put off buying a home because of the high prices are now able to afford the mortgage payment. Between an economic stimulus and historically low interest rates, many young people are finally purchasing their first home.
However, lower interest rates mean lenders are more selective about whom they approve. Only those with excellent credit can access these low-interest mortgages. In addition, many current owners are also taking advantage of these rates, refinancing their existing loans. Therefore, many lenders are overwhelmed with applications, so expect delays in the closing process.
Coronavirus and the Exodus to the Suburbs
COVID-19 has changed everything, including how we work, go to school, and live our daily lives. More Americans than ever are working from home. Students now attend school in front of a computer rather than in a classroom. And we are spending more time in our homes and less time outdoors with friends and family.
Because of these changes, the real estate sector is seeing more people leaving smaller city dwellings (like downtown condos and townhomes) for larger homes in the suburbs and rural areas. Data suggests several factors drive this move away from the cities.
First, working from home has become the norm rather than the exception. Therefore, employees need a dedicated office space where they can work without distraction. Secondly, with many school-aged children learning remotely, parents need space for their kids to learn, complete projects, and play safely. And finally, we are all spending more time than ever within the walls of our homes. Those who previously lived in tight spaces are longing for room to roam or a yard where they can enjoy the sunshine without risk of Coronavirus exposure.
All these factors lead to more people abandoning the inner cities and searching for larger single-family homes elsewhere. And that’s great news for the residential real estate sector.
Projections for Q4
As we head into the final quarter of 2020, experts expect the home buying boom to continue. Buyers are taking advantage of low interest rates, leading to a veritable explosion of real estate activity across the nation.
Typically, housing sales slow as we head into the holidays. But 2020 has been anything but typical.
The pandemic also slowed building activity, meaning there is more demand than there is inventory to meet it. As a result, home prices are skyrocketing. Expect that trend to continue through the end of the year.
Will 2021 Be a Good Year for Real Estate?
No one knows for sure what the future holds. It’s possible we might see a wave of evictions due to high unemployment. This could destabilize the market and lead to lower home prices. However, it’s also possible that a Coronavirus vaccine becomes available, allowing our economy to get back to something resembling normal. This economic boost would likely maintain the current home buying trend.
There are many variables at play, but it appears the residential real estate sector will continue to see short-term gains. Even if the market slows, home sales will likely remain strong during 2021.
Let us know your story. Are you buying or selling a home in 2020? Are you excited or nervous about the housing market in 2021? Tell us in the comments below!