The COVID-19 global pandemic has brought periodic business shutdowns across the country and a huge spike in unemployment. The conventional wisdom is that the resulting recession should crater the housing market. Yet housing sales have largely remained strong because of housing inventory shortages. Here’s why there aren’t enough houses to meet today’s demand.
National inventory shortage
Despite the pandemic-fueled recession, home sales in many cities are thriving. That’s because conditions mostly unrelated to the pandemic have kept the housing market strong.
A residential housing inventory shortage is the key driver of the current state of the housing market. New home construction has declined in recent years and in 2020 hit its lowest level since 2015. Additionally, increasing numbers of Baby Boomers are not interested in listing their homes for sale, choosing to stay put for various reasons. Not to mention their need to find a place to live in a low inventory market once their home sells. Additionally, millions of millennials are shopping for their first or second homes, increasing overall demand. And historically, low-interest rates are prompting many to take the plunge into homeownership. All these factors taken together have kept home sales strong throughout most of the country.
By the numbers
The result of these demographic fundamentals has been a housing shortage that predated 2020 and, because inventory didn’t improve in many areas, continued throughout the year despite the recession. This shortage has fueled a market where homes sell breathtakingly quickly, with multiple offers and for sums tens of thousands of dollars over the asking price.
In February 2021 existing home sales were up over the previous February by 9.1% percent, according to the National Board of REALTORS®.
Certain conditions apply
Sales have not been hot in all markets. Now that so many employers allow employees to work from home, large urban markets with expensive housing, such as California and New York, are seeing many homeowners depart for less expensive locales. But sales are strong in Texas, where the underlying economy is strong and housing is still affordable.
Should you jump in?
If you are considering a home purchase, is now the time to jump in? It depends.
- First, consider your household’s personal needs. What are your future goals in terms of career and family growth? Are you financially prepared? Do what makes sense for you.
- Set a budget for what you can afford. Look for a home in your price range, and stick to that budget. Get preapproved for a mortgage so you know how much home you can finance. Preapproval improves your chances of winning a house by showing you’re a serious, prepared buyer.
- If you make an offer on a house and competitive offers bid it up past your ability to pay, move on. Don’t get caught up in a bidding war for a home you cannot afford.
Related – Buyer Beware of a Bidding War