September 11, 2020
The coronavirus pandemic has remade what’s normal, and homebuying is no exception. Typically, the real estate market tends to hit the brakes in the fall, as kids return to school and families juggle work, extracurriculars and the upcoming holidays.
But that’s not what’s happening as we head into the second week of September, closing in on the official start of fall: Sept. 22. Homes are getting snapped up faster as home values rise and mortgage rates continue to slide.
“Home sales are currently stronger than they were pre-pandemic and show no signs of slowing,” says Cheryl Young, senior economist at Zillow. “Demand is being fueled by low mortgage rates. We’re also seeing deferred home buying as the economy and housing market pressed pause in the spring.”
The median listing price on single-family homes grew for the 17th straight week, jumping 10.8% year-over-year, which is the most rapid growth in over two years. Meanwhile, mortgage rates have broken new records. The average rate on the 30-year fixed-rate mortgage is now at 2.86%, and the 15-year hit 2.37% this week—both all-time lows, according to Freddie Mac’s recent Primary Mortgage Market Survey.
As the number of homes for sale continues to shrink, new listings are being snapped up quickly. They’re lasting 12 fewer days on the market than they were 12 months ago, according to Realtor.com’s latest housing trends report.
“With unusually high buyer interest this late in the homebuying season, buyers are moving much faster than this time last year to beat out competition and lock in low mortgage rates. This means homes are sitting on the market for much less time, despite notably higher price tags,” the report’s author, Realtor.com economist Danielle Hale, wrote.
Whether this buying trend will continue is up in the air as supply is lagging behind demand, which appears to be the only real obstacle. What’s holding homebuying back now are chronically low levels of inventory, Johnson says, and stiff competition for homes that do come onto the market.
New listings dropped 12% during the week ending on Sept. 5, which spells trouble if construction doesn’t pick up. This is especially harmful for first-time buyers who are competing against a slew of bids for the same listing.
“Multiple offers are quite common for starter homes,” says Lawrence Yun, chief economist at the National Association of Realtors (NAR).
Why Is Homebuying Taking Off Now?
Experts can’t point to one reason why homebuying has defied expectations as we face a still uncertain economy and elevated levels of unemployment. Certainly, the Federal Reserve and GSEs, Fannie Mae and Freddie Mac, helped keep the market liquid so lenders could continue to do business as well as contain mortgage rates. But why is there such a big appetite for real estate now?
Low mortgage rates? People fleeing cities? The need for more space as working from home and remote learning become realities? Dormant buyers who were waiting for the pandemic to subside? It’s likely a combination of a few or all of these factors.
“Homebuying is currently on a tear, but much of this is likely due to the fact that those looking to buy during the spring homebuying season had to wait as the pandemic took hold,” Young says.
One influence that is undeniable in the recent buying spree is the rise of the ultra-low mortgage rate, says Yun of NAR.
Buyers who were held back from buying during the spring watched mortgage rates drop. Now that businesses are opening up and more people are finding ways to live with the coronavirus safely, the homebuying hesitancy has subsided. Low rates are just adding extra impetus to what was already a motivated buying segment.
“Low rates are the key reason for the robust homebuying, despite the still-high unemployment rate,” Yun says. “Those with secure employment are taking advantage of the low interest rates.”
The circumstances surrounding the pandemic have created homebuyers, as well, says Bill Cosgrove, president and CEO of Union Home Mortgage. People are using their kitchens for office space and spare bedrooms for classrooms, so many of them are looking to upsize.
Not only do they want more square footage, but they want to get away from urban cores so they can also have outdoor space.
“Our understanding of what ‘home’ needs to be has really expanded in 2020 and it’s happening with homebuyers of all types,” Cosgrove says.
How the Pandemic Has Shaped the Real Estate Market
Real estate experts agree the coronavirus has changed what people are looking for in a home—but to what extent is up for debate. For example, are people really abandoning New York and other major cities? At least, enough to call it a “trend.”
Headlines have suggested that people are leaving dense urban centers like New York to buy houses in the suburbs where land is plentiful and their neighbors are not within six feet. However, even with increased interest in places like upstate New York post-COVID, there’s still not enough data to identify a meaningful pattern.
Zillow examined whether or not there was a shift in where people want to live, especially in terms of cities and suburbs as more people spend time working and learning from home.
“After analyzing a slew of housing market data, we have not seen suburban markets strengthen compared to urban ones, nor an increase in search activity for single-family detached homes,” Young says.
New York-based real estate broker at Warburg Realty, Tania Isacoff Friedland, says that her clients have expressed interest in more space, but they’re not necessarily leaving the city. Many want to trade in their penthouse for a townhouse, rather than ditch their Manhattan ZIP code for something pastoral.
“There have been many stories about an urban exodus, but my clients have been bullish about the future of New York City and are still investing here,” Isacoff Friedland says.
Regardless of where you live, extra space is commanding buyer interest. The prospect of permanently working from home and schools requiring remote learning has caused homebuyers to reevaluate how much room they need. Even after the coronavirus is contained, there will still be people who continue to work from home, Yun says.
Additional considerations like multigenerational living (wherein extended family moves in), as well as using the home as a recreational space, have driven interest in the “destination home,” says Cosgrove of Union Home Mortgage.
The “destination home” is a one-stop-shop for homeowners who face more at-home time and it might include space for outdoor activities, social gatherings, work and privacy.
“The COVID-19 pandemic has forced all of us to spend a lot more time in our homes more than ever before. The destination home is a place where family and friends can gather compared to going out,” Cosgrove says.