The housing market is going wild right now as many people are buying homes left and right. What could be the reason behind this real estate frenzy? More importantly, will it cause any problems in the coming years?
First, we’ll talk about the housing market’s performance during the coronavirus pandemic. Then, we’ll go through the possible causes of this massive demand. For those planning to buy a home, we’ll discuss whether or not it’s a good idea right now.
A crisis may present an opportunity, just like the recent housing boom brought by the pandemic. However, you shouldn’t leap into the hype without thinking it through. Learn of the potential benefits and risks so that you can make a sound decision.
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How was the housing market during this pandemic?
Let’s look back at the months after the COVID-19 pandemic started. In April and May, home sales dipped to their lowest points since the 2007 financial crisis.
Homeowners were not sure about selling their homes. The market data proves it. The number of new listings got hit with a 40% dip in April 2020. There weren’t enough existing ones too.
Home sales were also lagging. The number of showings per listing in the United States went down by 40% in April 2020. As a result, home prices went up.
In 2019, the median price for a US home was $383,900. Then, it reached $389,000 in 2020. Yet, this didn’t stop people from buying homes. Americans even went on bidding wars for them!
The median price for homes is 18.7% higher than it was in 2020. This year, it’s even higher. According to Statista, it reached $408,800 in January 2021.
Recent data shows housing demand returning to pre-pandemic levels. Still, there is so much uncertainty hanging over the housing market.
What’s causing the housing boom?
Major events like the housing market trend aren’t just the result of one factor. Instead, several reasons came together to make it happen. Let’s talk more about them below:
- Low-interest rates – The Federal Reserve and other central banks lowered interest rates. This was intended to help economies get back on their feet. However, the IMF warned it could cause a financial crisis. The housing market trend is also one of the negative effects of the rock-bottom rates.
- Fewer homes being built – A lot of houses were left unfinished because of the pandemic. Materials became more expensive, especially lumber. As a result, the current housing inventory isn’t enough to satisfy the current demand. This often leads to higher home prices.
- The shift in family spending – People are spending on different things because of the pandemic. Many of them lost their jobs and businesses because of the lockdowns. In response, they are now more focused on survival needs, especially housing.
- Remote work – The public health crisis also caused many people worldwide to work from home. People assume that it would be a lasting norm. That’s why more of them buy single-family homes nowadays.
Pros of buying a home during the COVID-19 pandemic
The housing market boom might seem like an overblown reaction from buyers. Yet, there are certain merits to purchasing a home right now:
- Lower competition – You may have more choices for your new home. We said that there’s increased demand but reduced showings. Many people are still reluctant about going out there to shop for homes. Still, we suggest that you follow your country’s COVID guidelines while home shopping.
- Low-interest mortgages – Central banks lowered interest rates to encourage borrowing money. This is a usual way of reviving an economy after disasters like the coronavirus. This is great news for homebuyers because they’ll get lower rates for home loans.
- Better deals for secondhand homes – If a homeowner sells their home during these times, they will most likely offer it for a highly reduced price.
Cons of buying a home during the COVID-19 pandemic
Experts are warning about the current housing market, though. Some believe this could be the start of another housing crisis like in 2008. Also, you have to consider your local area.
Each local market’s conditions are different. This means your experience in buying a home will vary. Keep that in mind as you read the following risks when buying a home:
- COVID risk – You’re more likely to get the virus if you stay out too long. This is why we reminded you to follow public health guidelines.
- Not enough homes – Homeowners in your area might not be willing to sell their homes. Some of them could be waiting for the pandemic to go away first. Others just don’t want people potentially spreading the virus in their homes.
- Hassles in processing – You may find it harder to go through the procedures of home purchases and mortgages. What’s more, lenders are likely to be stricter in these times.
- Hassles in moving – It may be tough to get people to help you move. After all, your friends and family may risk getting the virus from doing so. After all, the coronavirus can infect anyone.
Should you buy a home now?
You should consider these pros and cons when planning your home purchase. Yet, there are other factors you should think about as well. Let’s take a closer look at each one:
- Income – Do you have a steady cash flow right now? This is one of the major requirements of mortgage lenders. After all, a borrower is more likely to repay if they’re earning money.
- Debt-to-income ratio – Your DTI gauges your chances of affording your monthly mortgage payments based on your current debt and income.
- Savings – If you have an emergency fund, you can cover sudden expenses without compromising your debt payoff. This is why mortgage lenders also check if borrowers have enough savings.
- Credit score – This measures how likely a borrower will pay their loans back. You usually need a rating of 500 to 580 to get approved for mortgages. Still, this will depend on your specific lender.
- Your expectations – You should expect the problems that homeowners usually face. For example, you will have to pay to maintain your home. You’ll have to pay for utilities every month and fixes in case something breaks. More importantly, be sure you’re willing to live in your chosen home for a long time.
Buying a new home also depends on personal finance. Make sure you have enough money before entering the housing market. Also, get rid of your debts or at least keep them low.
If you need a side gig, the internet has a lot of choices. It has options even for people who aren’t used to computers. Click here for our list of recommended work-from-home jobs.
Meanwhile, you have various ways of busting debts. For example, you could lump them into one balance with a lower interest rate. Check the other debt reduction methods in the Debt section.
Learn more about the pandemic housing market
What’s causing the real estate boom?
Central banks around the world reduced interest rates, making mortgages more appealing to homebuyers. Also, the coronavirus pandemic caused major shifts in consumer behavior. People are now spending more on basic needs, such as shelter. What’s more, the recent remote work trend makes owning a home more important than ever.
Is the housing market in a bubble?
Experts are split on whether or not the housing trend will pop like a bubble. Some say it’s just a great sign that people are spending again during the pandemic. Others warn that the factors fueling it may not last much longer. Until the pandemic finally ends, even experts are struggling to see where trends like this will lead.
Is the housing market going to crash?
Some experts say we’re at the start of a housing bubble like the one from 2008. They believe that it could happen once home prices mellow down to pre-pandemic levels. However, it’s hard to say for sure because of the uncertainty brought by the pandemic. After all, the demand skyrocketed due to several conditions brought by the pandemic.