On March 11, 2020, the world was told to shut down and social distance due to a national pandemic infecting millions. We barricaded ourselves and prayed for the best. Five months later, COVID-19 continues to spread. Businesses have had to close down, and the economy is in flux.
Strangely, despite economic uncertainty, the real estate market is thriving.
The 2020 Homebuying Boom
According to a survey of 1,000 people conducted by Redfin, three-quarters of homebuyers who plan to buy a home within the next 12 months indicated that the coronavirus pandemic has impacted their homebuying plans.
“Somewhat counterintuitively, the coronavirus-driven recession is propping up the housing market,” said Redfin chief economist Daryl Fairweather. “Homebuyer demand is surging despite GDP taking a historic nosedive in the second quarter, largely because Americans value the home more than ever and are willing to prioritize housing even as they cut back on other expenses. Additionally, the Fed is using low-interest rates to stimulate the economy, which is giving buyers more purchasing power and boosting home sales.”
Coronavirus’ Impact on Priorities
People spend money on what they value. With many more people living and working from home, the need for more space has become extremely important. Between concerns about being near others and contracting the virus or simply requiring a quiet, designated area in the home to complete work, people want to buy homes that accommodate them.
Also, many kids are learning from home full-time for the unforeseeable future, so a yard to run around in has become a huge priority. Having a private space to let your kids roam freely has now become an issue of safety.
The need for safety will often trump other desires. People will prioritize housing and be willing to expand their budgets to attain it.
In fact, 25% of the people surveyed by Redfin said these factors and others affected their decision to move sooner than later:
“When it comes to home preferences, the pandemic’s most common impact on homebuyers is a desire for more space, with 21% of respondents saying they want a designated area to work from home and the same share wanting more outdoor space. Additionally, 10% of respondents said they now want a bigger home, and 7% want a designated space for their children to learn from home.”
The Fed’s Impact
Another incentive to find a new home sooner is that interest rates are at an all-time low. More than half of the people surveyed said that the low mortgage rates played a factor in their moving plans.
At the time the survey was taken, a 30-year fixed-rate was at 2.98%. The savings over the life of the loan at these low rates equates to thousands of dollars.
“Pending sales were up 12% year over year in the four weeks ending July 26; the median sale price was up 11% year over year for the week ending July 26, the biggest increase since 2014; and more than half of Redfin offers faced bidding wars for the third consecutive month in July.”
Based on how hot the housing market was a year ago, the fact that it was up another 12% this year is huge! It means that people are paying a lot to purchase homes at this time.
Since lenders are working with strict criteria to qualify home buyers, it seems that people paying top dollar for homes can afford the mortgage payment. If those people lose their jobs or find their company’s income decrease, they may have a hard time marking mortgage payment.
If you are considering a move at this time, it is crucial to keep in mind that low-interest payments will ultimately not compensate.
Housing Demand & the Impact on Prices
We live in a world of supply and demand. If you have equity in properties and are ready to make a move, this could be an excellent opportunity to sell for a profit.
On the flip side, if you are house hunting, as any investor should always be doing, expect to find a very competitive market and to pay top dollar. If you follow the rules of a savvy investor, you will need to work harder to find distressed sellers and great deals.
Opportunities are always out there, but you need to be looking and continuously expanding your network.
What Does a Housing Boom Mean for Landlords?
The good news is that while many are unemployed and businesses have shut down, there are still people who have money and are looking to spend it now. Since the need to move is a top desire for many, the people who cannot afford to buy a new home will likely rent one. Places in the suburbs with open space have become more appealing.
The bottom line is that as people value the home more, they will be apt to spend more money to live in a comfortable and secure environment.
“The people who are delaying plans to move are most impacted by economics, with 45% of those respondents citing financial concerns as a factor in their changed plans,” Redfin reported.
In addition, many tenants do not want to move during a pandemic. They may feel safe in the space they have or cannot afford to make a change.
But when there is movement, there is an opportunity. I sold a condominium last month in Los Angeles for $23,000 over the appraised value and sold my primary home in Los Angeles within 90 days for multiple seven figures.
If we thought the housing bubble was going to burst with COVID-19, it seems to have done the opposite. We are indeed overdue for a housing correction, and with any purchase, always check your numbers and make sure they work for your goals and objectives.
Stay prepared, knowing that this hike in the housing market can’t last forever. In the meantime, make the most of the ride—let it work in your favor.
Join the discussion below in the comment section.