Why US Real Estate Has Prospered During COVID
Market Report Videos - By International Banker
Covid-19 pandemic wreaked havoc in business across the globe decreasing both demand and supply in almost every field of the market. Months of lockdown and quarantine have taken their toll on US businesses in particular. Real estate, however, was one of few businesses which experienced continuous sustained growth despite the restrictions.
House-price appreciation in the US is nothing new. Home prices have increased by 70% on average since 2012. On the other hand, the pandemic has left many people unemployed resulting in a decrease in income for many Americans. It seems safe to assume that these changes should have resulted in lower demand for homes in the US. however, at least for the time being that is not the case.
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Despite the nosedive in market interest for home buying and selling in the beginning of the pandemic in the last quarter of 2020 and the first quarter of 2021 due to uncertainty on the evolving developments at the time, real estate now is experiencing a higher demand and a lower supply. Mortgage applications for new home purchases have risen by 34.7% compared to the year before. On the other hand appreciating house prices have risen by 9.1% year-over-year in November according to the The S&P CoreLogic Case-Shiller 20-City Home Price Index.
This trend which contradicts expectations should have been caused by a higher demand and limited supply in the market. For buyers, buyer interest was sent to new record lows during the year. On the sellers’ side, homeowners seem to be reluctant to sell their home during the pandemic as the governments encourage people not to leave their homes. The low existing inventory of houses, stopped prices from decreasing despite the declining demand. In the following month when the market saw an increase in demand, the supply stayed limited: In August 2020, the number of homes on the market was two-third of the homes there were in August 2019.
On the other hand, US authorities have done a lot to make sure the pandemic does not put homeowners under any undue pressure by preventing direct mortgage servicers from any new foreclosure action as well as suspending any in progress for single-family properties.
Now , will house prices continue to rise in 2021? The current condition of the market due to the pandemic has made the Feds introduce a new policy framework that “seeks to achieve inflation that averages 2% over time” to make sure rates remain low until inflation at least moves above its target. It is highly unlikely for 2021 to see such change.
In spite of the new development in vaccines and the latest stimulus package, the circumstances are far from pre-pandemic normal and there is a very strong demand for homeownership. Lawrence Yun, chief economist for the National Association of Realtors (NAR),believes home prices to rise by 3 percent in 2021.
