How did pandemic increase housing demand?
I’m trying to figure out why housing prices took off over the past 2 years, all sources point to the pandemic, but I can’t find an exact answer as to how the global transmission of a virus increased demand or reduced suppLy. One theory I saw was “people are spending more time at home, therefore they want to buy a new house”. They would obviously then put their house on the market, therefore the rationetwern supply and demand would not change, and therefore no change in value. Of peole wanted to move “away from the city to take advantage of remote working” you’d see home prices rising in areas out of the cities and suburbs and dropping to an equal extent in and near cities, which is not the case (putting aside normal and insignificant differences in markets / areas). If it were the low rates, then we’d obviously be atop a bubble that is about to burst which all sources say is not the case.
1) Inventory has seriously decreased in most markets. That is, the number of houses coming up for sale in a given time period is well below what it was before the pandemic. Supply going down means prices going up!
2) The stock market is way up. Many people who had stock investments see that and want to get out while they can. Particularly right now! People are deciding to exit the stock market and invest in property.
3) Working from home is here to stay and people are adjusting to that.
4) Until the past couple of weeks, mortgage interest rates have been at all time lows. That means prices can go up while the note stays the same.
Supply chain issues have made it difficult for new housing to keep up, thus cost of new housing has escalated, making current housing more expensive. Very similar to what is happening in the auto industry.
#3 All Forums Contributor
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- West Valley Phoenix
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#3 All Forums Contributor
- Contractor/Investor/Consultant
- West Valley Phoenix
Housing prices were crazy before the pandemic. They just went even higher....I think a lot of it had a psychological angle...people were feeling so trapped and panicked that they needed some release, and since everyone had tons of money sitting in their house...why not? Just my .02...
#3 Innovative Strategies Contributor
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No theories. Stimulus and loose monetary policy has inflated prices and asset values across the board.
@Mike Dymski is dead on look no further than Feds balance sheet its more than doubled since 2019. They have inflated asset prices to nth degree. With interest rates from banks around 0% this pushes people into riskier and more high maintenance assets such as stocks and real estate.
As a side tangent if Tesela would not have been in this zero interest environment they never would have been able to develop like they have. Had investors been able to buy government backed bonds at say 6% Tesela stock would be valued much lower. There are many other tech companies that just killed because of "Easy Money." The low interest rates have created a very distorted economy.