In 2019, no one saw the COVID crisis coming. However, when the world was locked down amid the pandemic, few saw the coming real estate boom. The health of real estate during this period is counterintuitive. How can unemployment rates rise, productivity slow and the housing market still be healthy? If people are locked down, why would they be in the market for a new home?
One explanation might be pent-up demand. As people were locked down in the spring, they delayed house hunting or perhaps became dissatisfied with their own homes since they were confined there for so long. Summer ushered in a huge house buying spree. It was a seller’s market with rising prices. In August 2020, according to realtor.com, the median listing price for a house was $350,000, up 10% year over year.
Aggressive buying worked through excess homes, with housing inventory declining by 36.4% year over year. Usually, a home is on the market for 56 days, but in the summer of 2020, the average time spent on the market declined by 5 days to 51. Summer was a time to get out and buy, and the strength has continued into the early fall.
Is the Boom in the Housing Market Sustainable?
Although 2020 was a summer or love for the housing market, it doesn’t seem that the upward trend is sustainable. Job losses due to the pandemic were greater than for a similar period during the pandemic. According to Pew Research, the unemployment rate in February 2020 before the onset of COVID was 3.8% compared to 13% in May. It is hard to reconcile these levels of unemployment with high house prices and robust buying.
Those who feel more secure financially are buying homes, but these numbers may decrease as 2021 approaches. Zillow CEO Richard Barton said in an earnings conference call that the level of bullishness in the property market can’t continue but he doesn’t foresee a huge decline. He says housing prices are “expected to peak this fall then taper off through 2021, though still staying above pre-pandemic levels.”
Cautious Optimism for 2021
Although numbers like the 46% increase in year over year sales in August may not see an exact repeat in 2021, there is a mood of cautious optimism in the real estate industry. Work at home opportunities are keeping unemployment from being catastrophic and remote workers along with millennials buying their first home were among the main buyers during the summer boom.
What distinguishes the pandemic from the Great Recession is the pent-up demand that can be unleashed once regulations are eased, a vaccine is found or there is another resolution to the crisis. Also, it wasn’t an entire industry that crashed, like housing in 2008, but jobs were lost because factories and shops closed. These closings and production slowdowns can be reversed as economies open up. Work at home opportunities and the fact that the consequences of the pandemic could reverse themselves may keep the real estate market afloat in 2021.