Why are Home Prices Exploding?
I am a nerd in many ways. Specifically, I have been told that I “nerd out” about sports, financial news, fantasy sports, non-fiction books, and sports statistics, among other areas. One of those other areas is real estate. Any time a house nearby goes up for sale, I hop online to look at the pictures, check out the listing price, and see what other information I can discover. Lately, I have noticed that despite prices being much higher, “sale pending” and “sold” notifications still pop-up quickly, so I went looking for, and found, some reasons why. I’ve listed them below in no particular order.
Apartment Fatigue – While it was long expected that eventually Millennials would marry, have children, and migrate from downtown apartment living to the suburbs, COVID-19 probably accelerated that process. When sharing a living space with hundreds, or thousands, of strangers becomes a health risk, having your own place and yard becomes increasingly attractive.
Remote Work – Related to the COVID-19 impacts mentioned above, with remote work on the rise, living near your office to limit commute time becomes less important. The giant remote work experiment, for lack of a better word, that was forced on employees and employers in early 2020 looks to have been successful enough that companies are embracing the idea of remote work moving forward. If you aren’t required to be in the office 5 days a week, your living options expand greatly.
Supply – The supply of houses for sale was already at low levels before restrictions earlier this year kept construction crews from completing dwellings in time for the start of the traditional home buying season. Without those expected new homes in the market, supply was reduced even more. The basics of economics will tell you that when supply of something is reduced and demand is the same or higher, prices will go up.
Forbearance – Forbearance, a lender-approved process of delaying mortgage payments, has been a great thing for many dealing with COVID-related paycheck disruptions. It has also delayed the foreclosure process for the countless homeowners who would have lost their houses without the disruptions brought on by the virus. This regular influx of houses for sale has dried up for the time being, further dropping the number of houses up for sale.
Interest Rates – In an effort to stall some of the economic impacts of the COVID-19 lockdowns, the US Federal Reserve cut interest rates drastically. This resulted in rates dropping across the board, including mortgage rates which are currently right around an all-time low.All of the above factors have one thing in common: they’re great for home sellers right now. The seller’s market in real estate will flow through to the rest of the economic data, providing another sign of a recovering economy
Photo by Tierra Mallorca on Unsplash