The Pandemic Roiled the Housing Market
The Pandemic Roiled the Housing Market—but Small Signs Show It’s Finally Bouncing Back
It’s no secret that the pandemic upended the housing market—and the fallout is still reverberating today, affecting homebuyers and sellers.
A quick recap: In the past four years, list prices shot up, the number of properties on the market plunged, and home sales dropped dramatically.
“Some of the problems that existed before the pandemic were magnified,” says Realtor.com® Chief Economist Danielle Hale. “We had a housing shortage, and that probably was exacerbated by COVID-19 as builders struggled to build and housing demand went through the roof.”
And who could forget mortgage rates, which fell to record lows during the pandemic before rebounding—and then some.
“The sharp drop in mortgage rates that we saw as policymakers tried to shore up the economy caused a lot of people to choose to move,” Hale explains. “Those movers are now locked into mortgage rates that are much lower than today’s mortgage rates.”
That’s keeping the supply of homes low—which leaves list prices high. The bad news? These issues are likely to persist longer as the market continues to settle into its new normal.
“Will we go back to a more pre-pandemic, balanced market?” asks Mark Fleming, chief economist of the title insurance company First American. “It will probably take a couple more years.”
That said, there are some signs that things are finally bouncing back: New builds are on the rise, and more homes are already being listed this spring, according to Realtor.com data. In February this year, active listings on Realtor.com were up 14.4%, and new listings were up 11.3% from a year earlier.
What else has changed in residential real estate since the world shut down four years ago?
We compared data from February 2020 to February 2024. We also looked at the annual number of existing- and new-home sales. What we found are two incredibly different homebuying and selling landscapes. Take a look at where we came from—and where we’re going.
Home prices shot up—and remain high
February 2024: $415,500
February 2020: $305,485
Percentage change: 36%
Home prices began skyrocketing fairly early in the pandemic. Many folks who were working and schooling their children from home wanted more space. Others who could suddenly work remotely wanted to move. And low mortgage rates enticed those who had been thinking of buying their first homes or trading up or down into new ones to jump into the market.
All of that heated competition led to bidding wars and previously unthinkable offers for way over the asking price. That drove prices up to record highs. List prices peaked at a median of $449,000 in June 2022, according to Realtor.com data.
“We’ve seen probably some of the strongest home price appreciation in measured history,” says Fleming. “The pace of appreciation was quite spectacular.”
However, what goes up, must come down, right? Not exactly—especially when there are still enough eager buyers in the market to keep prices high.
“It’s unlikely that prices will go back down to the pre-pandemic normal,” says Hale. But “affordability has to improve. Buying a home today takes up a much larger share of a paycheck than it has historically. That seems like a trend that can’t be sustained.”
Mortgage rates fell to record lows, but have since climbed
February 2024: 6.81%
February 2020: 4.37%
Percentage change: 55.8%
Mortgage rates have been on a wild ride these past four years.
Hovering around 4.5% in 2020, rates “were historically low,” says Shmuel Shayowitz, the president and chief lending officer at Approved Funding in River Edge, NJ.
But when the pandemic and the accompanying shutdowns began and millions of Americans lost their jobs, the Fed cut interest rates to help stimulate the economy. Mortgage rates bottomed out, falling to an unprecedented, record low averaging 2.65% for 30-year fixed loans, according to Freddie Mac.
“It was out of control,” says Shayowitz. “I’d never seen so many people who came out and attempted to buy than in the pandemic.”
But by 2022, inflation was quickly ratcheting up. The U.S. Federal Reserve fought back, raising interest rates to bring inflation down. Mortgage rates surged as a result, locking would-be sellers into their homes and pricing out many buyers.
It’s been “a gradual fade of buyers as interest rates continued to climb,” says Shayowitz. “I don’t think it was this bad in the post-2008 [housing] crash.”
The housing shortage worsened
February 2024: 664,716
February 2020: 928,343
Percentage change: -28.4%
Another casualty of the pandemic is the nation’s housing inventory—or lack thereof.
Lured by the lowest mortgage rates anyone had ever seen, buyers fought over whatever listings they could find. They closed on first homes, move-up homes, vacation homes, and investment properties. Many of those folks wouldn’t have bought for a few more years, but the lower rates accelerated their timelines.
“Everyone who would be a seller was busy locking in historically low mortgage rates,” says Fleming.
Now, with rates much higher, many homeowners are reluctant to sell and give up those low rates they locked in. This is keeping the housing supply frustratingly low.
“What we mostly need is moderately lower [mortgage] rates both to spur the flow of new listings and the ability to buy them,” says Fleming. “The main concern with housing inventory is when someone goes to buy a home, do they have a lot of choices? The more listings, the better.”
The good news is more homes are coming onto the market this spring, according to Realtor.com data.
“For-sale options are improving and are expected to continue to climb seasonally through the spring and summer,” Realtor.com senior economic research analyst Hannah Jones said in a statement.
Existing-home sales have dropped
2023: 4.09 million
2019: 5.34 million
Percentage change: -23.4%
It’s not that people don’t want to purchase houses. Millennials–now in their peak homebuying years—and members of Generation Z desperately wish to become homeowners. However, many can’t find the right homes in their price ranges.
“There are far fewer homes for sale today than there were four years ago,” says Hale. “As a result, there are fewer home sales.”
Still, there is optimism that sales of existing homes will be better in 2024, especially as even slightly lower mortgage rates have helped convince some homeowners that it’s time to list. (Existing homes do not include new construction.)
There were 17.8% more new listings in the week ending March 18 compared with a year earlier, according to Realtor.com data. And the market is fast approaching the best time to sell, when homes attract a lot of interest, sell quickly, and often for more money than they would fetch at other times of the year.
“Home sales will probably increase, very modestly, even this year as mortgage rates come down,” says Fleming.
New construction is a bright spot in the housing market
2023: 666,000
2019: 683,000
Percentage change: -2.5%
Builders are capitalizing on the lack of existing homes available. Some are putting up smaller, more affordable abodes, while others are buying down mortgage rates to make purchasing their residences more affordable. It appears to be working.
“The new-home side of the market is poised to benefit from the existing side’s struggles,” says Hale. “We expect new-home sales to grow in 2024.”
However, the housing shortage isn’t expected to improve until builders can scale up and produce enough homes to meet demand. When the housing bubble burst in the mid-2000s, many builders had few customers for their unsold homes. Some construction companies went belly up. Others slowed down construction. And in the early days of the pandemic, some builders temporarily paused construction before revving it back up again.
“The recovery has been very, very slow,” says Fleming. “We’ve just not built enough homes for over a decade now relative to demand.”
Days on the market have fallen—you’d better act fast!
February 2024: 61
February 2020: 73
Percentage change: -16.4%
In spring 2022, the number of days the typical home spent on the market dropped to a low of just 30, according to Realtor.com data, leaving buyers with very little time to decide whether they’ve found The One.
But as mortgage rates ticked up past 5% (and beyond), homes began lingering on the market longer.
These days, most buyers don’t need to submit an offer over the asking price within nanoseconds of a “For Sale” sign going up in the yard, with one big caveat: Move-in ready homes in desirable locations that are priced right are still expected to sell briskly this spring.
By Clare Trapasso – Realtor.com - Mar 27, 2024
https://www.realtor.com/news/trends/covid-pandemic-upended-housing-market-small-signs-bouncing-back/
@ChuckBarberini - #ChuckBarberiniRealEstate - @ChuckBarberiniRealEstate
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