Housing In The U.S Is on an Incline Post Pandemic – Here’s Why
During the pandemic, the housing market in the U.S has been an unlikely beneficiary. Sounds absurd, right? Yes, we know, but let’s understand why exactly this is happening.
Around June 2021, the median price for an existing home in the United States was just over $363,000, which is almost a 23.4% increase from the previous year. In fact, over the past 15 months, there’s been a noticeable acceleration in property prices to levels that haven’t been reached in decades. Since the peaks have surpassed the 2000 housing crash, people are getting worried if we’re going into another bubble. There are even debates about whether or not the bubble that happened a couple of decades back was actually that.
Amidst the chaotic discussions, most experts claim that the market appears to be at a boom. After all, the rate at which the prices have gone up is absolutely unbelievable.
A look at what happened during the pandemic
For more clarity, let’s first understand what a housing bubble is. As the name suggests, Bubble is inflated to such an extent that it could burst anytime. A housing bubble was a market condition that cropped up in the 2000s when there was a sudden surge in the pricing of houses in the US. Post this incline, what followed was a huge bubble burst of crashing prices.
Coming to the present day, before the pandemic, the US housing market was pushed into an overdrive, where the price of an average home was climbing more than 50% from 2012 till 2019. This was the third biggest housing boom in the history of America. Then the pandemic hit, and along came a buying frenzy and selling freeze. This created a mismatch in the supply and demand and made prices boom into warp speed.
Thus, now the houses in America are at the highest prices they’ve ever been. They’re even higher than the rates in 2006 before they crashed out by 60% in 2012!
What experts say
Along with speculation being a major factor right now, the main causes of the current housing demand are low mortgage rates. In March 2020, at the beginning of the pandemic, the 30-year fixed-rate mortgage was 3.45%; however, by July 2021, it dropped to 2.87%.
According to the National Association of Realtors, supply is also an issue because, over the past 20 years, the US has underbuilt housing needs by 5.5 million units. This is a clear difference from the previous housing bubble in 2008, where overbuilding was the issue.
Presently, there’s a demand due to the lowest recorded mortgage rates and shrinkage of supply. Thus the prices are up because the demand is more than the supply, which is happening at a faster pace than in the 1970s.
Well, as of now, there’s a lot of uncertainty about the future, especially for remote work. It’s possible that people are over-optimistic, and homebuyers are overestimating the future demand to live in the suburbs. Additionally, it’s also possible that people are continuing to overestimate the importance of the big cities. To prevent this situation from exploding into something worse, policymakers need to be cautious about the important role indebtedness can have in the future.
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