Recent analysis has revealed that even in the midst of the pandemic, the housing market is thriving. According to the National Association of Realtors, total existing-home sales, including single-family homes, townhomes, condominiums and co-ops, rose by 24.7 percent from June to July, and sales as a whole rose 8.7 percent year-over year. In fact, their analysis concluded that it was the sharpest monthly sales gain recorded since 1968 (the year NAR began collecting housing data).
Lawrence Yun, NAR’s chief economist, reported: “The housing market is well past the recovery phase and is now booming with higher home sales compared to the pre-pandemic days… With the sizable shift in remote work, current homeowners are looking for larger homes and this will lead to a secondary level of demand even into 2021.”
Larger Homes in High Demand
However, not only are more homes selling, but we are actually witnessing buyers seeking slightly larger homes than before. A recent study conducted by Redfin identified that homes sold between July 20, 2020 and August 16, 2020 were on average 3.7 percent larger, or 1,772 square feet larger, than the typical home that sold a year earlier. Potential buyers saved internet searches support the same conclusion: The average minimum square footage of these searches was 1,864, up 3 percent since January and 4 percent the year prior.
This phenomenon has been attributed to buyers seeking larger spaces to accommodate the many new lifestyles brought on by the coronavirus outbreak. Now that people are working from home and students are attending school from home, buyers want to identify homes that can accommodate all aspects of their new daily routine. In addition, buyers want more outdoor space to allow for recreational activities that promote social distancing. A Redfin Survey identified that out of the buyers expecting to purchase a home in the next twelve months, 10 percent said they now want a bigger home, and 7 percent said they want a designated space for children to learn from home.
Home Prices Rising
This uptick in transaction velocity has resulted in home prices continuing to rise, which has been apparent since earlier this year. Home prices rose on average 7.8 percent through the first seven month of 2020, and then 8.1 percent from June 2020 to July 2020. The value of the homes has been impacted by three trends witnessed in 2020 thus far:
- Historically low interest rates resulting from the FED cutting rates to zero in March 2020,
- Increase demand for homes as people seek to take advantage of the low interest rates, and
- Decline in supply of homes as Americans fear economic uncertainty related to the coronavirus and upcoming elections.
Steve Gaenzler, SVP of Data and Analysis at Radian, stated: “Home prices across the U.S. continued an impressive appreciation run in July. When contrasting the effect on home prices of negative COVID headwinds on the U.S. consumer and economy versus the trifecta of historic low mortgage rates, near record low supply of homes for sale and increased demand for homeownership, so far home prices have come out on top.”
Buyers Moving Away from Cities
To accommodate the desire for larger homes at an affordable price, more people are seeking opportunities to acquire homes further from major city centers – They are looking for homes that are offered at a lower price per square foot, and homes that may offer more yard space and neighborhood amenities. In addition, they are looking for homes that aid in their ability to social distance, which is recommended for Americans across the county. This trend was apparent to the Redfin report, which identified that prices jumped year over year 11.3 percent for homes in more rural areas, 9.2 percent in suburban areas, and only 6.7 percent in urban areas.
Moving into 2021
While new listings of homes were up across the board (7.6 percent year over year for larger homes, 8.3 percent for smaller homes, and 1 percent for medium homes), total supply was down 25 percent from July 2019 for each category. The ongoing uncertainty of our economic security has stalled homeowners decisions to move. Many are skeptical of the necessity to move because they feel life will return to normal in the next twenty-four months, while others are fearful of economic challenges that may be intensified if they move. Gaenzler pointed out that “While not contained in current data, recent changes to housing policy from the White House, Congress and the Government Sponsored Enterprises (GSEs) related to future stimulus and forbearance provisions, along with continued unknowns related to COVID-19 may begin to weigh on housing in coming months.”
On the contrary, some analysts are predicting that in spite of current uncertainty, political unrest, and economic turmoil, the housing market will continue to boom. Frank Martell, president and CEO of CoreLogic identified that “On an aggregated level, the housing economy remains rock solid despite the shock and awe of the pandemic. A long period of record-low mortgage rates has opened the flood gates for a refinancing boom that is likely to last for several years… In addition, after a momentary COVID-19-induced blip, purchase demand has picked up, driven by low rates and enthusiastic millennial and investor buyers. Spurred on by strong demand and record-low mortgage rates, we expect to see more home building in 2021 and beyond, which should help support a healthy housing market for years to come.”
Only time will determine how the housing market will hold up through the coming months, but for now, sellers appear to be in the most advantageous position as buyers seek comfort and serenity in purchasing new homes.