The Covid-19 coronavirus pandemic has undoubtedly changed the lives of billions of people across the globe in the course of just one year. In what seems to be a relentless exercise, health experts remain cautious even with the advent of vaccinations, especially as certain parts of the world are still enduring unprecedented surges and virus variants.
Accordingly, the pandemic has caused disaster in every aspect of the word: countless deaths, borders shutting down, political upheaval, and economic turmoil— indeed, Covid-19 has caused crises in unimaginable ways.
One specific area that is especially experiencing the brunt of this unprecedented crisis is the housing market.
Early last year during the initial phases of the pandemic, economic fears were widespread, and nearly every country faced significant losses in their financial markets. This was due in large part to all-time lows in consumer sentiment—with sweeping stay-at-home restrictions, extensive lay-offs and furloughs, retail business failures, and most importantly, surging deaths due to the virus across the globe, people prioritized having cash on hand and personal financial security. This not only lead to significant stock market sell-offs, but also created a general trend of cautious pause to see how the pandemic would play out, prior to spending any money on hard assets such as real estate.
However, over the course of the last few months, especially as the hope of “normalizing” back to pre-pandemic life has continued to grow, economic growth and consumer spending has also followed a positive trajectory. Accordingly, investment in the stock market has quickly escalated, pursuing market enthusiasm based on projected economic and GDP growth due to aggressive hopes of vaccination and “reopening” measures. The housing market has followed a similar trend, with relatively low mortgage rates and more positive consumer sentiment fueling a sudden interest in homebuying.
Danielle Hale, Chief Economist at realtor.com, writes that “While home prices never declined, they were flat this time last year, which is one of the reasons we’re seeing home prices register such large gains compared to that time. A similar story plays out for new listings. In sum, the housing market remains competitive and while the new listings trend is an optimistic sign for hopeful buyers, they still face a challenging market.”
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Hale also provides some key statistics that better illuminate the state of the housing market:
- “Median listing prices grew at 18.7 percent over last year, marking 35 consecutive weeks of double-digit price growth.”
- “New listings–a measure of sellers putting homes up for sale–notched a 36 percent gain compared to this time last year following last week’s 7 percent drop.”
- “Total active inventory showed a smaller decline for the first time since November 2020, but it remains 53 percent below this time last year. The total number of homes actively available for sale continues to be less than half of what we saw last year, and we’re measuring from somewhat lower early-pandemic levels.”
And therein lies the perfect storm— increased demand and low supply have created an unprecedented surge in housing prices. The third point in the list above is especially important—as Hale writes, housing supply has dropped an incredible 53 percent compared to what it was last year.
Furthermore, in addition to the general sentiment due to the Covid-19 pandemic, other factors have also contributed to the milieu of this perfect storm. Lumber prices have skyrocketed, having nearly tripled in price since this time last year, due in large part to increased demand for home renovation projects, new home builds, and decreased global production. Experts believe that increased time spent at home, especially fueled by policy changes by many large corporations encouraging work-from-home, has caused increased interest in renovating homes and living spaces.
Moreover, corporate relocations have created dramatic surges in demand for housing in certain regions and cities. Take for example Tesla, which is in the process of building “Giga-Texas,” a $1 billion dollar, 2,000 acre factory slated to produce the company’s new line of Cybertrucks and create atleast 5,000 jobs. This is in addition to Tesla CEO Elon Musk himself moving to Texas, as well as SpaceX and Neuralink also significantly ramping up their operations in the Lone Star State. Musk’s ventures are just a few of the many technology companies relocating to Texas in recent years, including significant expansions by already-established giants such as Apple and Google. All of this has caused a significant boom and increased demand in the Texas housing market.
There are many such examples taking place all over the country. Phoenix, another area which has seen tremendous corporate interest and significant economic growth is equally struggling with a brutal “sellers-market” and remarkably decreased inventory. Real estate prices in Raleigh, North Carolina were already increasing steadily thanks to the region’s notable “Research Triangle” area, which consists of multiple large and cutting-edge academic research institutions. This week, Apple announced plans “to invest over $1 billion in North Carolina,” and “begin construction on a new campus and engineering hub in the Research Triangle area.” The company states that the “investment will create at least 3,000 new jobs in machine learning, artificial intelligence, software engineering, and other cutting-edge fields.” Needless to say, buyers can expect this news to propagate an immediate frenzy in the Raleigh housing market, as demand will undoubtedly soar in the coming months.
In many ways, increased demand and an active housing market may be an indicator of positive consumer sentiment and robust economic growth, especially for newer, smaller cities on the rise. However, economists are struggling to assess whether the pent-up demand and soaring prices are the effect of, or are indeed leading to the creation of a “housing market bubble,” a term and concept which holds potentially ominous undertones. Especially within the context of a worldwide pandemic and public health crisis that has created turmoil globally, this analysis is particularly important.
Nonetheless, the coming months and perhaps years will be defining for the housing market—for those looking to purchase; for those struggling to build; and certainly, for those bearing witness on the sidelines, trying to navigate an unprecedented situation.