A year ago, we were in a very different place: The coronavirus pandemic was just beginning, but the real estate market had been running hot. With interest rates and housing inventory near historic lows, most areas of the country were in a solid seller’s market, and most homeowners were enjoying watching their home values appreciate, with their home equity growing (in some locations) by leaps and bounds.
And then the pandemic brought home sales to a near full stop. Last March, home sales fell 8.5 percent from February 2020. On a seasonally adjusted basis, February 2020 sales reached a peak of 5.8 million and fell to 5.27 million in March 2020. New construction fell about 15 percent, the worst showing in 6½ years. Because almost 40 million Americans lost their jobs at the start of the pandemic, the housing market sunk further. Existing-home sales fell nearly 18 percent from March’s lower level, reaching just 4.33 million in April 2020 on a seasonally adjusted annual rate. That was the lowest number since September 2011. New-home sales rose slightly, surprising many.
By April, we were already hearing anecdotal reports that people were looking to unload their condos and smaller rental units and head to the suburbs, and beyond, for larger homes with more space and amenities. By June and July, it was clear that there was a mass migration out of city centers, breathing new life into communities that hadn’t seen this sort of demand since before the housing crisis. Home prices continued to rise, in some cases dramatically. According to the Zillow Home Value Index, home prices rose 9.1 percent over the past year since the start of the pandemic and are expected to rise more than 10 percent over the next 12 months. In Boise, Idaho, the typical home value in February 2020 was $339,000.
Today, at the time of writing, that same home costs just over $419,000, an increase of nearly 25 percent. In fact, it’s fair to say that nearly everywhere in the country, the residential market is on fire. Even in places that had struggled to recover from the devastating effects of the housing crisis. According to Realtor.com, since the start of the pandemic, home prices have risen 14.3 percent, there are 27 percent fewer new listings than expected during the week of March 7, 2021, 50 percent fewer homes are on the market and homes are taking less time to sell (by a week).
“The housing market bounced back so much faster than other sectors of the economy that many have forgotten that housing activity slowed to a crawl during the early days of the pandemic,” according to Realtor.com chief economist Danielle Hale.
Many industry observers are concerned that the momentum could be lost if people don’t decide to sell their homes. The lack of new listings in the first two months of 2021 means there is a gap of 200,000 in new listings, leaving more buyers fighting over fewer homes. Which is why Zillow expects prices to climb an additional 10 percent this year.
There are a lot of reasons sellers haven’t moved in the past dozen years. Historic-low mortgage rates have a lot to do with it. Last year, mortgage interest rates hit 15 historic lows and were at or near historic lows again in January, and millions of Americans refinanced their mortgages, making it incredibly cheap to stay put. Mortgage data aggregator Black Knight said lenders did $2.8 trillion in refinancing in 2020, with homeowners cashing out $152.7 billion in equity. In November, the company calculated that 19 million homeowners were still good candidates for refinancing and could save about $309 per month. By the end of the year, Black Knight said, “some 46 million homeowners held a total of $7.3 trillion in tappable equity, the largest amount ever recorded.”
Here’s the problem most sellers have faced since the housing crisis: If you move, you’ll get less house for your money, and you’ll pay more for it. So, you’ll plow your equity (and perhaps need a loan on top of that) for a smaller home that may not give you as much — or enough — space in a post-covid-19 world.
So, why move? By July, 52 percent of millennials were living with their parents during the pandemic. According to a study from the Pew Research Center, 71 percent of Americans say they are working from home part time or full time and say they want to keep working from home even after the pandemic ends.
If you’ve got a nice big house that’s paid off or has a super-low interest rate, it’s likely to be a lot more affordable than selling and buying something else. So, it’s fix-up time — the virus has been a boon for the home improvement industry. Here’s what isn’t going to change anytime soon: Home buyers and homeowners want every square foot they can get, for themselves, their children, their home offices and their pets. Even interest rates rising slightly off historic lows won’t slow this exodus from city to suburb to rural America. At least, not yet.