(CBS Detroit) — Spring is in the air. And during a typical year, when the country isn’t emerging from a pandemic and the economic destruction it wrought, that would mean the start of home-buying season in many places. But 2021 isn’t a typical year, and neither was 2020. There is a whole different set of factors at play in the housing market.
A little over a year ago, the country plunged into the COVID pandemic. Large parts of the economy shut down, including retail stores, restaurants, movie theaters and pretty much every other physical space one might go to spend money. People were told to stay home and quarantine. And with grocery stores about the only place left to go, most people listened. The unemployment rate soared from 3.5 percent in February of 2020, the last full month before the pandemic, to 14.7 percent in April, the first full month of the pandemic. The federal government rushed out a $2.2 trillion stimulus bill to provide some relief. But it wouldn’t be enough.
The real estate industry, which had been enjoying a sellers market, was among those sectors hit very hard. Housing sales basically stopped, as did home building. Very few people wanted to pursue one of the biggest transactions of their lifetime during a time of such uncertainty. Nor did they want to enter other people’s homes — or allow others into theirs — with an airborne virus wreaking havoc. Existing home sales dropped by about 18 percent by April and 10 percent more by May. Then they soared
A confluence of factors turned things around pretty quickly. The economy entered a deep recession, then, almost as quickly, started to pull out of it. (The term ‘recession refers to a decrease in economic activity, not the level of it.) Economic activity remained subdued, but not everyone felt the economic hardship equally. Lower-wage employees, particularly those in restaurants and other hospitality-oriented industries, were unable to work. Many eventually lost their jobs. Higher-paid employees mostly worked from home.
Those who kept their jobs often had fewer things to spend their money on. Many traditional entertainment options were off-limits. School became remote for millions of children. And parents no longer needed to pay for daycare for those hours after the school day ends but before the workday ends. The first round of stimulus checks put even more money in people’s pockets, though many of them did not need it. The savings rate soared.
As the pandemic continued, it became very clear that people were going to be stuck in their living spaces for the foreseeable future. And with the whole family at home all the time, the limitations of those living spaces became painfully obvious. Those whose work lives became fully remote were also no longer restrained by proximity to their offices. For many, that change is now becoming permanent as corporate America rethinks whether it needs to bring workers back at all.) Add in low interest rates — which started 2020 at 3.75 percent for a 30-year fixed mortgage mostly dropped from there — and the recipe for a run on certain types of housing began to take shape.
People wanted more living space and a bigger yard. That took them from cities to suburbs and suburbs to more distant suburbs or smaller cities in search of enough house at an affordable price to meet their demands for more house.
As CBS News Business Analyst Jill Schlesinger said recently in an interview on CBS This Morning, “a lot of people were at home, whether they were working at home because companies put them home, or they’re at home with their kids, they looked around, they wanted space. Now, here we are at hopefully at the end of the pandemic, the question is, what will happen? I think the move that we’ve seen is from the big cities to sprawling suburbs, now we’re looking at smaller cities. It could be Austin, Charlotte, Nashville and some of these even smaller cities are even offering cash incentives to get you to move. There are websites that will hook up buyers with these fascinating places like Baltimore, you can get $5,000 toward the purchase of a new home there.”
By February of 2021, the national median sales price for an existing home was $313,000, 15.8 percent above where it was in February of 2020. And that number rose in every region of the country. Much of that rise was pushed by houses priced above the median. Housing inventory had also reached a record low, down 29.5 percent from the previous February. The tight market contributed to a 6.6 percent drop in home sales. And of the homes that sold last month, 74 percent were for sale for less than a month.
“The real critical issue that has plagued the housing market is supply,” according to Schlesinger. “Down 30 percent for existing homes. When you have a ton of people coming into the market, and limited supply, numbers are higher. All that limited supply is exacerbated by the fact that some boomers didn’t want to list their homes in the middle of a pandemic and when you look at the price of new homes, that’s also rising. Not just because of the lack of supply, but when you look at the cost of materials, whether its crude oil used in paints, it could be copper used in the lines, all put together, prices are indeed higher and a lot higher for many would be buyers.”
High prices and rising interest rates will limit growth to some degree. And limited inventory could limit it further. Still Lawrence Yun, chief economist for the National Association of Realtors, sees the general upward trend continuing. “I still expect this year’s sales to be ahead of last year’s, and with more COVID-19 vaccinations being distributed and available to larger shares of the population, the nation is on the cusp of returning to a sense of normalcy.”
“Many Americans have been saving money and there’s a strong possibility that once the country fully reopens, those reserves will be unleashed on the economy.”