Since the summer of 2019, our world has experienced more chaos and faced more uncertainty than we would have ever imagined. The Covid-19 pandemic touched every part of lives and impacted every industry, for better or worse. The real estate industry is interesting to observe because it was one of the ones that made it out stronger than before. With skyrocketing demand and prices that followed suit, the real estate market exploded with new opportunities and challenges to overcome. Here is what we know about the real estate market from 2019 and 2021.
Real estate market prior in 2019
Before the general public had heard even a whisper of what was coming to change all parts of our lives, the housing market was already on an optimistic road up. With a prosperous economy and rising employment rates, the first quarter of 2019 saw home equity hit a record $15.8 trillion. Millennials were a surprisingly significant chunk of these purchases, and in 2018, they made up the largest demographic of mortgage applications at 44%.
The housing market in 2019 was also marked by house-flipping. Always a significant portion of the housing economy, flips reached its highest level in over twenty years. By the summer, single-family rentals increased by an impressive 33%. This was a setback for first-time homebuyers who were already having difficulty getting their hands on scarce listings.
There were 5.34 million homes by the end of 2019. This came after a year of an already dwindling housing supply, increasing mortgage rates, and an increasing number of prospective home buyers. With housing prices on a slope up, median sales price stood at $267,300 by April of 2019, 3.6% higher than the year prior. This momentum that started in 2019 would continue to grow as we headed into 2020.
Why the housing market boomed through Covid-19
When the realities of the global pandemic began to set in, those in the real estate industry feared a collapse. In hindsight, those fears were unwarranted, as the housing market experienced the most significant boom it had since before the 2008 financial crisis. Let’s take a look at a few reasons why the market spiked so dramatically.
- Mortgage interest rates
Interest rates dropped to historic lows in 2020. This meant significant savings for homeowners that had previously locked in their mortgages at much higher rates in years prior. This caused the refinance boom across the country. For prospective homebuyers, such as young millennials looking to make a move from renting to buying, it was a good time to invest in a safe purchase.
- Need for more space
Because of lockdowns and other restrictions, many people chose to leave their city condos and apartments for bigger homes in the suburbs or more rural areas. Doing so not only allowed for more room, a precious commodity during times of stay-at-home orders and WFH, but for those that could afford to do so, it provided a haven away from cities where chances of infection were higher.
Real estate challenges through Covid-19
Despite the substantial growth due to the Covid-19 pandemic, the real estate industry was not without its challenges. All players in the process, from lenders and agents to notaries and title companies, had to be creative to keep business moving as usual while maintaining safety at the forefront. Many real estate agents took advantage of virtual showings and utilized zoom calls to walk their clients through homes. Others continued in person with the use of face masks and social distancing. Either way, it was an added element to an already nerve-wracking process for many people.
Title companies and escrow agents, whose jobs involve in-person signings, faced the same dilemma: how can we execute closings safely. Many companies limited the number of people coming to closing, with Facetime being the solution to keep agents with their clients. Others exclusively held closings outdoors or even created drive-thru closing systems.
One of the most fundamental parts of applying for a mortgage loan is ensuring that your income and employment remain steady. Obviously, through a global pandemic that devastated dozens of industries and left economies all over the world in shambles, this proved to be difficult. Those who lost their jobs could not qualify for loans and were forced to postpone their housing search. Other borrowers who were fortunate enough to remain employed took advantage of the historically low interest rates to purchase or refinance their homes.
Real estate market in 2021
The real estate boom that started in 2020 grew well into 2021. Though mortgage rates have slowly been increasing, the demand for housing has stayed incredibly strong along with housing prices. Listings are down 43% as compared to last year, and sellers still have the upper hand.
At the end of 2020, homes were staying on the market for roughly 21 days. Now, well into the 3rd quarter of 2021, they are flying off the market in just 17 days. In June, the national median of all housing increased to $363,300, a 23.4% increase from last summer. Pricing is continuing upwards, and as of June, we hit 112 consecutive months of year-over-year gains.
Even though there are not enough listed homes to satisfy demand, buyers are predicted to continue entering the race, and many do so with cash offers. Because of the intense competition between buyers, cash sales accounted for 23% of all homes sales. Despite talk that the housing market is beginning to cool off, experts are doubtful that we are headed for a crash in the coming years. Considering that home prices saw an increase of 23%, almost triple predictions, we’d say this is a fair bet. However, experts are also predicting more homes to be listed in the second half of 2021, meaning prices are expected to cool.