In the past year, homes have been selling well over asking price with many involved in bidding wars. These days, the root cause of everything is COVID-19, and this case is no different.
1. Population Shift
The Stay-at-Home Order has forced many American’s to stay at home for long periods of time. Those who live in small apartments in the city suddenly had the desire for more space and some land to play with. This caused a shift in population from the city to the suburbs, causing the large amount of vacant rental properties and the shortage of homes in suburban and rural areas.
2. Telework
The Stay-at-Home Order forced many employees to telework, also known as working remotely. With many companies making the switch to remote work permanent, people are re-evaluating where they live. California is seeing this more than any other state. With the highest state income tax rate and highest cost of living in the U.S., California’s “tech” workforce are leaving for bigger and better homes in Nevada and Arizona.
3. Job Loss
With many small businesses shutting down, there are a record number of unemployed people in the U.S. Many people are worried about losing their jobs so they are holding off on selling and buying a new home. This is adding to the lack of inventory. On top of that, there is a shortage of real estate agents. Some fear that they may get COVID-19 while others have adapted to virtual tours and online communication. Home builders also suffered during the shut down. Some home builders went out of business while others lost employees to COVID, new job opportunities, and generous unemployment checks. Home builders can’t build homes fast enough.
4. Material Shortages
Speaking of home builders, material shortages are affecting all companies from Honda to Apple to Farmers. Due to these shortages, the cost of wood and steel tripled. These shortages have made new homes 25% more expensive to build while taking as much as 6 months longer to build them.
5. Interest Rates
With the COVID shut down causing a stock market collapse in March-April 2020, the government lowered interest rates in an effort to stabilize the economy. With record low interest rates, many people and real estate investors saw this time as an opportunity to buy up homes. There are some neighborhoods in Philadelphia that have been gentrified and completely taken over by wealthy real estate investors, forcing lower income families to rent homes or leave the area. Interest rates have been steadily rising in recent months, but have increased rapidly towards the end of May 2021.
Conclusion
With homes still selling well over asking price, I think the housing shortage is here to stay for sometime. It could take years to catch up with the consequences caused by the pandemic. I personally would not buy a home in this market. There are many unknowns in the economical, political, and social state of the United States and it does not make sense to buy homes at these peak values.
