When the COVID-19 pandemic broke out, the U.S. housing market took a major hit. Unsurprisingly, as with most aspects of American life, the pandemic fueled a housing crisis and a widespread fear.
The uncertainties surrounding employment, health, safety, and mobility pushed Americans to have cash on hand and prioritize personal financial security. Unfortunately, this rippled into significant losses in financial markets. In particular, people shied away from spending money on hard assets like real estate.
The rental market also took a huge blow because the market, which was mostly concentrated in cities, heavily relied on students, immigrants, and foreign and domestic tourists, which came in a trickle due to border restrictions and localized lockdowns.
The mass layoffs and pay cuts also pushed a huge chunk of the population to default on their rent or vacate their rentals to return to their parents’ home or move to cheaper accommodations.
But after a rapid vaccine rollout, the country’s economy has shown some signs of recovery. People are hopeful, and those who’ve been awash with cash are starting to plan to spend. But what does this mean for the real estate industry?
House prices will continue to rise
Leading real estate marketplace Zillow reported that rising house prices are likely to persist in the post-pandemic era. As the economy bounces back, people will start to gain confidence in their jobs. And that will result in more potential sellers entering the market.
The current rise caused by the pandemic could create a seller’s market wherein sellers can keep prices high while houses are scarce. Other positive indicators that will drive this increase in home prices include massive fiscal support, ultra-low interest rates, and widespread mortgage availability.
But demand is increasing
With home prices rising, will the demand for housing be able to catch up and stabilize the market? Experts predict that it may take some time before this becomes a possibility. The good news is that a strong recovery since the pandemic hit has resulted in a more positive consumer sentiment. Now that people are more confident about their employment, the demand for homes is expected to rise, albeit steadily.
In fact, some markets have been breaking their historical bests month on month. The demand is oustripping the supply, but not just because people are eager to buy and sellers are hell-bent on holding than selling. There are also external factors at play, like the increasing adoption of virtual listings and closings and digital mortgage approvals. These shifts could fast-forward the pace at which homes are marketed and sold.
Preference for home makeovers is likely to continue
The pandemic has driven a surge in demand for home improvement projects and smart home upgrades, and the consensus among experts is that this trend is likely to persist long after the pandemic.
While necessity was the catalyst for this building boom, the collective need to make living spaces more personalized, convenient, and attractive will make this shift become the norm. Outdoor additions like decks, pools, and playgrounds have increased three-fold from pre-pandemic numbers, followed by outdoor and indoor kitchens, home gyms, and home offices.
Telework will likely boost homebuying demand
Telecommuting or working from home is likely here to stay, and this could be a major driving force for the rise in home buying. People are awash with cash and are ready to spend, and the integration of flexible work arrangements will be a main decision-making factor for people.
Those who have been working in cramped spaces will likely upgrade into bigger houses, while those who have stayed in the city will move to neighborhoods more suited for telecommuting.
Some states will fare better than others
After all, national forecasts only provide a bird’s eye view of the housing market. How individual markets perform will greatly vary, depending on socio-economic factors and growth drivers in that specific locale.
If you drill down into the local market level, you’d find that some states are faring better than others. In Utah, for example, zero-down home loans and expedited closings are pretty common because it was already a hot market before the pandemic. People from adjacent states have been streaming into the state in search of more space and bigger homes, which has made the state’s housing sector practically immune to the COVID-19 crisis. The same goes for other hot markets like Idaho, New Hampshire, and Montana.
Unfortunately, other states, especially those that didn’t see much growth before the pandemic, and those that heavily rely on tourism and hospitality like Hawaii and Alaska will likely suffer for much longer. States with weak job growths like New York, Washington, D.C., and Illinois are also struggling.