While the economy as a whole has suffered massively during the coronavirus pandemic, some markets have thrived. Considering the situation with tens of millions out of work and most Americans staying home whenever possible, you wouldn’t expect the housing market to be booming right now.
However, the residential housing market is going through a historic boom. Newly-built home sales jumped by 55 percent in June, the biggest single-month gain in 15 years. But why, exactly? It’s hard to square the fact that the coronavirus ravaged the economy, yet one of the most expensive industries is having a banner year. What’s contributing to the housing boom, and will it last?
Why Home Sales Are Spiking
There are a few reasons that the housing market is booming, some of which are directly related to the pandemic. For starters, many city dwellers are looking to flee crowded urban areas following outbreaks, especially in New York. Many people feel less safe using public transportation or felt suffocated in tight spaces during lockdowns. Moreover, as people realize they can work from home efficiently, some have decided to do so in suburban homes instead.
In addition, younger generations of Americans are getting closer to traditional homeowning ages. Millennials, for instance, range from 23 to 38 years old, while the average first-time homebuyer is roughly 32. The largest age cohort in America is moving into the housing market, and that’s starting to reflect in recent trends.
Lastly, mortgage rates have been lower in the last five years than at any point in American history.As mortgage rates drop, buying power increases for potential homeowners, and plenty find deals too good to pass up. Click To Tweet
Home prices, on the other hand, have been steadily increasing since February. While this seems counterintuitive, it’s a response to how the demand for houses exploded after months of suppression.
What the Future May Hold
Generally speaking, there’s a lot of uncertainty around the housing market right now. As with anything, the housing market would be seriously disrupted by a second wave of lockdowns if the coronavirus worsens in the fall or winter.
Plus, political action dictates a lot of how the housing market could move in the next year. The government already announced that homeowners with mortgages backed by certain companies can get forbearance until next year.
With more sweeping stimulus bills coming, it’s almost impossible to predict what could change next. A potential change in the president could also radically shift the government’s approach to the housing market, supplying even more uncertainty.
The Bottom Line
In a lot of ways, there are more questions than answers about the housing market right now. While the current housing boom makes sense considering all the contributing factors, it’s hard to know how long it will last or what comes next.
Currently, it’s a great time to try to sell a home. Prices and demand are both high, and while mortgage rates remain low there should be plenty of prospective buyers.Historically low mortgage rates contribute to making expensive homes more affordable for borrowers, as interest over the life of the mortgage is a fraction of what it was a decade ago. Click To Tweet
Prospective home buyers should be wary, as home prices could drop soon, but they have more purchasing power than usual.