The coronavirus pandemic has plunged the United States into a deep recession, increased the unemployment rate, and most devastatingly taken the lives of over hundreds of thousands of individuals. Amidst this crisis, however, the housing market has fared surprisingly well. At a national level, home prices in July were 5.5% higher than in 2019. Why did this occur?
The rise in the price of housing has been caused by high demand for housing, a historically low supply, and record low mortgage rates. The culmination of these factors has given rise to the fastest growth in home prices since 2018.
There is significance behind the low mortgage rates as they substantially contributed to an increase in demand for housing. On average, the widely used thirty-year fixed mortgage fell below three percent for the first time in July. This reduction had the effect of giving buyers additional purchasing power.
According to Frank Nothaft, chief economist at CoreLogic, “lower priced homes are sought after and have faster annual price growth than luxury homes.” He continued to say that “first time buyers and investors are actively seeking lower priced homes, and that segment of the housing market is in particularly short supply.”
This is reflected by the statistic which reveals that there is a 32% reduction in inventory of homes worth less than $100,00. Meanwhile, the shortage of luxury homes priced between $500,000 and $750,000 is only 9%.
Another interesting aspect of the housing market to analyze is the price differential between urban and suburban homes. The best comparison to make is between the percentage growth differences between New York City and suburban areas close to New York such as Long Island. The New York City housing prices only rose by.4% whereas the in the surrounding suburbs the housing prices rose a dramatic 4.3%. Experts at CoreLogic contend that this is the result of urban flight. Many New York City residents fled to the suburbs amidst the coronavirus due to concerns of overcrowding, and moreover because suburban homes provide more space to work from home and complete schoolwork from home.
The shifts in the housing market serves as yet another indicator that the novel coronavirus has affected nearly every segment of society. While the rise in home prices is a great improvement for sellers, buyers are left with an even more difficult housing market to deal with—especially with money already tight due to coronavirus.