COVID’s long impact on the housing market
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The coronavirus pandemic has had profound impacts on the housing market. House flipping and residential real estate investing have risen drastically, with real estate analytics firm CoreLogic reporting that investors bought a record high 28 percent of all single-family homes in the first quarter of 2022.
With the rise of remote work, the type of homes we want to buy has changed with buyers consistently wanting bigger homes in lower-cost areas like Texas.
The initial lull in home sales at the very start of the pandemic quickly turned into a white hot sellers market with buyers offering over asking price and even waiving home inspections.
As the pandemic has become a part of daily life, which of these changes to the housing market are here to stay?
COVID and the housing market
At the very beginning of the coronavirus pandemic housing sales and new construction initially stalled in the face of economic uncertainty. As the stock market stabilized, housing prices picked up.
Record low interest rates, families feeling cramped after a year of sheltering in place, and supply chain issues worsening our housing stock shortage all combined to create an extraordinarily hot housing market.
Houses were under contract for over asking price within hours of hitting the market. Investment firms looking to diversify started buying up housing stock for cash. Desperate buyers started waving inspections and contingencies.
In an effort to curb inflation, the Federal Reserve started raising interest rates in March 2022. Initially the housing market didn’t show any significant changes, but as the Fed continued to raise the rates drastically, home prices have started to stabilize this summer. Homes are staying on the market longer and buyers are starting to have some leverage again.
Experts have mixed predictions on what is next for the housing market but most agree that with interest rates remaining higher, we’re heading away from an extreme seller’s market.
How COVID has impacted the homebuying/selling process
Virtual listings were already standard, but with many taking social distancing recommendations seriously, virtual viewings and closings saw a massive jump over the course of the pandemic. “Listings with video that tell the story of the home were vital,” says Julie Reese a real estate agent with John L. Scott Real Estate in Bellevue Washington.
Industry advancements that make the selling and buying process more convenient are likely here to stay. “While closings are being done in person, many buyers and sellers are opting to not attend for convenience,” says Kimberly Jay, a real estate broker with Compass in New York City.
New technologies that were already speeding up the process saw more adoption, making the actual closing process faster. Automated loan underwriting has improved and timelines are faster. According to Reese, “a year ago it might take three weeks to get an appraisal back, today it’s about a week.”
How has COVID affected home sellers?
The hot market motivated more people to sell with “many empty nesters accelerating their plans to sell at premium prices,” says Jay.
In addition to market conditions, many sellers decided to sell as a result of working remotely. “In King County Washington specifically I had more sellers moving out of state because of taxes with many going to areas where they can just get more house for the money,” adds Reese.
Sellers were often receiving multiple offers, many with inspection contingencies waived. This left little incentive for sellers to fix up their homes before selling them, a trend that is likely to reverse as the market becomes more balanced.
How has COVID affected homebuyers?
Throughout the pandemic, states with low or no income taxes saw their populations grow, while urban areas and states with high costs of living saw their populations decline. This is on top of a general trend away from cities and towards places with lower costs of living, “both at the beginning of Covid and now, buyers are looking for a bit of extra room in a home,” says Jay.
During the height of the pandemic many would-be home buyers were stressed and had a hard time competing with cash offers. “Many were waiving contingencies and making quick decisions,” according to Jay. Of those that did end up buying, many regretted those quick decisions, with 64 percent of millennial home buyers saying they have some regrets about their home purchase.
While the market has cooled somewhat in recent months, the colossal growth of investment firms buying up starter homes is going to have lasting impacts on first-time homebuyers specifically. Many would-be first-time homebuyers are being priced out of the market.
With firms like Blackstone preparing to invest $50 billion to acquire residential real estate, “there will have to be a shift in regulations on big corporations” to adjust the playing field for first-time buyers, says Reese.
It’s not all doom-and-gloom for first-time homebuyers though. As the market cools, “today actually presents a buying opportunity. There is less competition, creating time for buyers to assess their budgets, choose the right home, and perhaps negotiate to a price they feel more comfortable paying,” says Jay.
“Where we live is what gives us stability, and humans crave stability. When the world was literally turned upside down by a pandemic, where we live became even more important,” Reese says.
Buying trends like wanting more space for your kids to play or a dedicated home office are likely here to stay. If remote work continues to remain popular and companies stay flexible, lower cost of living states will stay popular areas for homebuyers.
Faster closings and more of the process becoming digitized are also trends that are unlikely to reverse.
As interest rates continue to rise we’re unlikely to go back to the all contingencies waived, under contract within two hours, wild-west seller’s market of last year.
Without major changes in regulations and investment trends, homes sold at the bottom of the price range are likely to continue to be snapped up by large investment firms, flippers, and private landlords to turn into short-term and long-term rentals.