Why are Housing Prices Skyrocketing During a Pandemic?

Since the beginning of the Covid-19 pandemic, millions of Americans have been left without work, forced to move out of their homes, and striving to find ways to feed their families. It’s been easy to see, and undeniably so, that Covid-19 has led to a major recession in the economy. For this reason, it’s not surprising that many people expected a crash in the housing market with a decline in both sales and prices.

But to the surprise of many, the exact opposite has happened and the housing market is booming more than ever. Housing prices have hit all-time highs and buyers are landing in bidding-wars that are leading houses to sell well over market value in just a matter of days. 

Which leads us to the question: Why and how are housing prices skyrocketing during a pandemic? There are a few factors leading to this increase:

 

1. Low interest rates

Right now, interest rates are at an all-time low. At the beginning of 2020, interest rates for mortgages dropped to below 2.7%. That’s a big deal! And it’s not surprising that Americans are jumping on the opportunity to lock in and take advantage of such a low rate. For the people who can afford to do so, right now is the perfect time to apply for a mortgage in order to save thousands of dollars on interest.

 

2. Supply and Demand

With such a large drop in mortgage rates, the demand for housing has drastically increased. But the supply has not followed the lead. At the current time, there are far more people interested in buying houses than in selling them. This leads to multiple buyers looking at the same home, and ups the value of the market. In many cases buyers end up in bidding wars, increasing the final sale price of the home to higher than market value. 

 

3. Second-time home buyers

There is much evidence to suggest that many owners of wealthier households are using the lower mortgage rates to invest in second homes. The problem with this is that many of these secondary home buyers are not selling their first home, thereby leading to a further issue with supply and demand. 

 

4. A shift in spending

With travel opportunities limited and with people spending more time indoors than out in public, people are shifting their spending habits. Instead of spending money on dining out, travel, and shopping, people are investing in homes. This is especially true for many people who are now working at home and looking for additional space. Again, this shift in spending habits increases the demand for homes, without the supply following suit. 

In conclusion, it may come as a shock to many that housing prices are at an all time high. But because mortgage rates are at an all-time low, this increases the demand for the housing market. Unfortunately, the supply is not as strong as the demand, and this inevitably is the cause of skyrocketing housing prices during the pandemic.