It’s been a few years since the COVID-19 Pandemic shut the world down, and who could forget what a strange time it was for the first couple of months?
But eventually, things became more regular, routines were established, and people adjusted to the new normal.
The good news is that it is all past, and things are back to normal, including schools, shops, restaurants, and the housing market.
Even though things have gone back to pre-pandemic norms, as a real estate agent, it’s essential to think about the intersection of Covid 19 and the housing market and find the current opportunities that may not have existed before the pandemic.
While millions lost their jobs and businesses shut down, many have gotten back on their feet. However, that doesn’t mean that the housing market wasn’t impacted.
At the time, property sales came to a halt or slumped to an all-time low and caused gridlock in the housing market, leading experts to question what was to come next.
Well, we now know that one of the things that the pandemic did was to accelerate more remote and work-from-home options for people.
And as people spend more time at home, their needs change, and they may be looking for more space or an extra room to serve as an office space, which means many people are up-sizing their homes or looking to sell and relocate elsewhere.
Another impact of the pandemic is that inflation has increased. Inflation happens when there is more demand than supply, driving prices higher.
As prices rise, so does the interest rate to limit the amount of money in circulation, which can help lower demand, bringing prices to a more stable position or even lowering them altogether.
The pandemic caused unprecedented changes in the housing market, with remote work becoming a permanent fixture in many industries. As a result, the demand for larger homes in suburban areas will likely continue to rise.
However, the pandemic's economic effects may keep the housing supply low, resulting in even more significant increases in housing prices and creating further hurdles for those seeking affordable housing options.
Impact of COVID-19 On The Housing Market Gridlock
COVID-19 caused a significant impact on the housing market, and gridlock is one of the most apparent outcomes.
Buyers have to deal with the combination of rising inflation and lower inventory, making them wary and hesitant about making substantial investment decisions during such a time of uncertainty.
Furthermore, the pandemic also affected the economy, leading to an increase in unemployment rates and a decrease in consumer confidence, which, with rising interest rates, reduced demand for housing as people held back on making big-ticket purchases.
To understand where the housing market will be in the future, you need to understand some of the history and how the pandemic impacted the market.
Why House Prices Surged as the COVID-19 Pandemic Took Hold
The COVID-19 pandemic has significantly impacted the housing market, with house prices surging to record-breaking levels in recent months.
Before the pandemic, the annual increase in house prices was relatively moderate. However, house prices have skyrocketed in many areas due to limited supply and increased housing demand.
Several factors have contributed to the surge in house prices.
First, a growing share of the population aged 25-40 -the typical age range for buying a home- has increased the demand for housing.
Secondly, the economy had been healthy just before the pandemic, which created a favorable environment for investing in property.
Lastly, lending standards for prime borrowers have eased in the wake of the pandemic due to historically low-interest rates, making it easier for people to access mortgage loans.
Despite the benefits of surging housing prices, they have also negatively impacted affordability in many areas.
Furthermore, the increase in house prices has not been evenly distributed. While some cities saw house prices double or triple, others had more modest gains. This disparity could lead to increased inequality in the long run.
COVID And The Housing Market
The COVID-19 pandemic hit the housing market hard, causing many buyers and sellers to put their plans on hold. In addition, as businesses shut down, employees were furloughed or laid off, and household incomes were impacted. This led to a decrease in demand for housing and, subsequently, a decline in the real estate market.
However, as the pandemic gradually became a part of the new normal, the market began to pick up steam. One key factor that has played a significant role in the housing market's recovery is the record-low mortgage rates.
Low-interest rates have opened up a window of opportunity for potential home buyers and investors to take advantage of cheap financing options. This has increased demand for single-family homes in major markets and expensive cities like San Francisco and Salt Lake City.
Despite the economic downturn, the housing market has shown resilience and is experiencing a housing boom. As a result, the prices of homes have continued to increase, although the inventory of homes for sale remains low.
Real estate professionals have had to adapt and embrace digital technologies to facilitate virtual home tours. This has helped buyers to make informed housing decisions, even amid the pandemic.
Overall, the market has significantly recovered, although uncertainties remain ahead. Nevertheless, the fundamental drivers of housing demand, such as household formation and income growth, stay consistent and will continue to be the backbone of the housing market.
The Housing Market Before COVID
Before the COVID-19 pandemic, the US housing market was showing signs of steady improvement.
Housing affordability, a significant issue in many parts of the country, was slowly improving due to low-interest rates and rising household incomes.
Another factor in the market was the emergence of a new generation of homebuyers who were seizing a large share of the housing market.
These younger buyers tended to be more interested in single-family homes and were entering the market when there was a relatively low inventory of homes available, so competition was fierce in many areas.
Overall, the pre-pandemic housing market showed promise, with signs of growth and a healthy level of demand.
Housing Affordability Was Improving
One of the most significant contributors to the improvement in housing affordability was declining interest rates.
Mortgage rates have gradually declined since the Great Recession of 2008, making it easier for Americans to finance a home.
In 2019, interest rates hit historic lows, further lowering the cost of borrowing and reducing the monthly mortgage payments for homeowners.
Another factor that contributed to the improvement in housing affordability was rising incomes. As the economy recovered from the Great Recession, household incomes began to grow. This gave more Americans the financial stability they needed to purchase a home and cover the associated costs.
The demand for housing, particularly in the suburbs of major cities, also drove down prices and improved affordability. As more people sought affordable housing options outside of expensive urban areas, suburban home prices began to rise more quickly than in other regions.
What’s also essential for you to know is that real estate tends to appreciate in line with the consumer price index (CPI), meaning that an increase in the CPI generally increases home values.
This can have a significant impact on the housing market, particularly during times of economic growth.
As the economy improves and inflation rises, real estate prices follow suit.
The consequences of low housing affordability could be far-reaching.
Reduced homeownership rates could impact the American Dream of owning a home, reducing the stakes of the middle class in society and creating more inequality in the long run. Furthermore, rising housing costs may increase rental prices, which could significantly impact low-income communities.
A New Generation Seized A Large Share Of The Market
2019 was a turning point for the housing market, as the millennial generation, with considerable purchasing power, seized a large share of the market. This generation represents the largest segment of buyers and exhibits vastly different housing preferences than their predecessors.
This seismic shift in the market caused a surge in demand for rental properties and home purchases. The trend was observed across various markets, including San Francisco, Salt Lake City, and other expensive cities. As a result, housing demand skyrocketed, which further drove up housing costs and prices.
In addition to the surge in demand, there were significant changes in homebuyer preferences. For example, many homebuyers sought larger homes with more space for indoor activities and home offices, accommodating the needs of remote work and virtual schooling.
The Housing Market At The Onset Of COVID
The onset of the COVID-19 pandemic significantly impacted the housing market. The initial reaction was a temporary lull in sales and new construction, as potential homebuyers and sellers sat on the sidelines because of the uncertainty brought by the pandemic.
During this time, real estate professionals and investors experienced fears and concerns about the housing market's future.
If you remember, with so many things up in the air, there was an urgent need to reassess the potential trajectory of the industry.
However, things began to change as the stock market stabilized and mortgage interest rates hit historic lows. As a result, there was an increase in lending activity, which caused an uptick in home sales, with buyers looking to take advantage of lower mortgage rates.
In addition, many individuals' preferences and priorities shifted due to the pandemic, leading to a boost in demand for single-family homes with more space as people settled into working and studying from home.
The shift to remote work also resulted in suburban areas experiencing increased housing demand as city dwellers sought more space and a lower cost of living.
The housing market adapted to the changing environment and became more digitally focused as real estate agents found new innovative ways to showcase homes.
Instead of hosting open houses to find leads, agents were developing new strategies to reach out to prospects, including using social media, email, and other digital media to reach people.
One tactic I use with great results is video texts.
Every day I record a personal video text and send 10 to people in my sphere. They range from simple little ‘hello’ to comments on a significant life event or other notable occurrences. I don’t talk about real estate or pitch my services. Instead, I make these video texts personal and about them.
The point of these video texts is to be friendly and stay top-of-mind for them and not about promoting my business.
Limited Supply of New Homes
One of the most pressing issues in the housing market post-COVID is the limited supply of new homes, mainly single-family homes.
Despite the growing demand, new home construction has struggled to keep up, resulting in a shortage that only exacerbates the housing affordability crisis.
Single-Family Homes in Short Supply
Single-family homes are currently in short supply in the housing market, and several factors contribute to this phenomenon.
At the core of this issue are decreased inventory numbers due to low quantities of new construction, pandemic-related restrictions just now being eased, federal moratoriums, and the impact of local government regulations.
The pandemic did not only slow down the construction of new homes but also led to fewer listings and unease with showing homes due to the potential health risks of having people inside.
Moreover, the pandemic triggered a migration out of cities towards less densely populated areas. This has increased demand for single-family homes, ultimately exacerbating the shortage.
Lower supply can be a challenge but also presents you and your sellers an opportunity. The opportunity is that the market still favors sellers, and if priced right, a home is selling quickly and often above the list price.
Working From Home May Be A Driver
The COVID-19 pandemic drastically changed how we work and live, accelerating the trend toward more work-from-home opportunities.
With more people working remotely, the housing market is experiencing significant impacts. Working from home (WFH) has emerged as a primary driver of the housing market during the pandemic and continues to this day.
The ability to work from home has increased the demand for larger homes in suburban areas, leading homebuyers to move away from city centers to less crowded, more spacious areas. However, we are starting to see a trend toward city centers being viable areas again.
What Comes Next?
Despite these problems, the housing market's future remains good, even with some uncertainty.
Several factors can influence the housing market's trajectory in the near future. First, there is governmental action to provide down-payment assistance programs, new housing grants, and lower interest rates. In that case, there may be some relief and encourage buyers to enter the market.
A potential increase in supply as homeowners who were initially hesitant to sell before the pandemic become motivated to sell their properties may also help to stimulate the market.
Moreover, remote work and social distancing may accelerate the trend of moving to more spacious suburban and rural areas instead of crowded cities. This shift in demand could provide a new opportunity for homeowners looking to sell their suburban homes.
The onset of COVID-19 brought uncertainty and concerns to the housing market. However, as the market adapted to the changes brought about by the pandemic, it saw a resurgence in sales and demand for new construction, especially in suburban areas.
Being an adaptive agent is always beneficial, from learning where and how to find new clients, providing technological solutions like remote viewings and 3-D images, to being able to sign contracts digitally will only benefit agents in the new market.
The challenges from the pandemic will only lead to more opportunities for agents willing to do the work, adjust their systems, and adapt to the new market. Getting organized and accountable is the first step in overcoming these challenges, and that’s where a good real estate coach can help you.
A real estate coach will help you work out your goals, create systems that can help achieve them, and assist you with motivation to see these tasks through so you can accomplish what you set out to do.
There have been enough roadblocks in the housing market in the past few years, and to overcome them and thrive, you need some outside thinking and organization to help you.
