(CBS Detroit) – Spring is in the air. And during a typical year when the country isn’t emerging from a pandemic and the economic devastation it has caused, it would mark the start of the home buying season in many places. But 2021 is not a typical year and neither is 2020. Completely different factors play a role in the real estate market.
A little over a year ago, the country plunged into the COVID pandemic. Large swaths of the economy have closed, including retail stores, restaurants, movie theaters, and pretty much any other physical space to spend money in. People were told to stay home and quarantine. And since grocery stores were the only place you could go, most people listened. The unemployment rate rose from 3.5 percent in February 2020, the last full month before the pandemic, to 14.7 percent in April, the first full month of the pandemic. The federal government has issued a stimulus plan worth $ 2.2 trillion to remedy the situation. But it wouldn’t be enough.
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The real estate industry, which had a seller’s market, was very hard hit among these sectors. The sale of residential property has basically ceased, as has the housing construction. Very few people wanted to make one of the biggest transactions of their lives at a time of this uncertainty. They also didn’t want to break into other people’s homes – or let others into their homes – as a virus wreaked havoc in the air. Sales of existing properties fell by around 18 percent by April and by 10 percent by May. Then they rose
A confluence of factors turned things around pretty quickly. The economy fell into a deep recession and withdrew almost as quickly. (The term “recession” refers to a decline in economic activity, not in level.) Economic activity remained subdued, but not everyone felt the economic hardship equally. Low-wage workers, particularly in restaurants and other hospitality-oriented industries, could not 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 venues were forbidden. School became isolated for millions of children. And the parents no longer had to pay for the daycare for these hours after the end of the school day but before the end of the working day. The first round of stimulus checks put even more money in people’s pockets, even though many of them didn’t need it. The savings rate rose.
As the pandemic continued it became very clear that people would be stuck in their habitats for the foreseeable future. And with the whole family at home all the time, the limitations of these living spaces became painfully apparent. Those whose working lives were completely remote were no longer restricted by their proximity to their offices. For many, that change is now becoming permanent as American companies are rethinking whether they need to bring workers back at all.) Add low interest rates – which started at 3.75 percent in 2020 on a 30-year fixed-rate mortgage that has largely declined from there – and the recipe for a run with certain types of apartments was taking shape.
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People wanted more living space and a bigger garden. That took them from city to suburbs and from suburbs to more distant suburbs or smaller towns in search of enough house at an affordable price to meet their demand for more house.
Jill Schlesinger, business analyst for CBS News, said in a recent interview on CBS This Morning, “A lot of people were at home, whether they were working from home, because businesses were bringing them home or being home with their children, they wanted space . Well here we are hopefully at the end of the pandemic, the question is what will happen? I think the move we saw is from big cities to sprawling suburbs, now let’s look at smaller cities. It could be Austin, Charlotte, Nashville, and some of these even smaller cities even offer cash incentives to get you moving. There are websites that connect shoppers to these fascinating places like Baltimore. You can get $ 5,000 towards buying a new home. “
Through February 2021, the national median sales price for an existing home was $ 313,000, up 15.8 percent from February 2020. That number rose in every region of the country. Much of this surge was driven by homes that were priced above the median. The housing stock had also reached a record low with a decline of 29.5 percent compared to February. The tight market contributed to a 6.6 percent decline in home sales. And of the homes that were sold last month, 74 percent had been for sale for less than a month.
“The real critical issue that plagued the real estate market is the supply,” said Schlesinger. “30 percent less for existing houses. When a lot of people come into the market and the supply is limited, the numbers are higher. The limited supply is compounded by the fact that some boomers didn’t want to list their homes in the middle of a pandemic, and if you look at the prices of new homes, it’s going up too. Not just because of the lack of supply, but if you look at the cost of materials, whether it’s crude oil that is used in paints, it could be copper that is used in the lines. All in all, the prices are indeed higher and for many buyers would be much higher. “
High prices and rising interest rates will limit growth to a certain extent. And limited inventory could further limit it. Lawrence Yun, chief economist for the National Association of Realtors, continues to see the general upward trend. “I still expect sales this year to be higher than last year. With more COVID-19 vaccinations distributed and available to larger segments of the population, the nation is on the verge of a return to a sense of the world Normality.”
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“Many Americans have saved money and there is a good chance that these reserves will be released to the economy once the country is fully reopened.”