Despite COVID-19 surging and new restrictions looming, one of the most competitive housing markets in history continues to roll in the second half of 2020.
Like the rest of the world, the United States is in a recession, but you wouldn’t know it by the American housing market. Defined as two or more quarters of sustained losses in the gross domestic product (GDP), a recession usually brings falling home prices. But this isn’t your usual recession.
As the GDP dropped an astonishing 32.9% in the second quarter, mortgage interest rates remained at or near the lowest in history.
As summer turns to fall, the supply of available properties is still very low, but demand is unseasonably high. In a typical year, most shoppers would have completed their home search or called it off by now, to get ready for school.
But 2020 is no typical year. In July, the median home price shot up 8.5% year over year to hit a new all-time high of $349,000 – $27,000 more than last summer. Despite rising home prices, when the favorable mortgage rates are factored in, an overall home purchase is more affordable.
Home shoppers have come out of the woodwork trying to take advantage, but low housing inventory – an issue even before the health crisis – remains problematic.
Homebuilders still haven’t returned to normal production since getting pummeled by the housing crisis a decade ago. Even if they picked up the pace, analysts say it could take years to make up for the imbalance.
And beyond a lack of new home construction, there’s still a dearth of supply on the pre-owned market. Many of those who planned to sell this year delayed listing or pulled their homes off the market completely – although existing home sales did perk up by a healthy 8.7% in July.
The other consequence of economic uncertainty is tighter lending standards. Lenders must make sure they are going to recoup their investment, and the pandemic is still threatening job stability across the country.
As such, new homeowners often need a bigger down payment and higher credit scores to qualify for the best rates, even if they can find a suitable home.
The U.S. housing market performance is closely mirroring the virus’ path, with home prices falling in only two of the nation’s Top 50 metro populations, Miami and Orlando. Florida cities have been hard-hit by the coronavirus, which may help to explain the declines.