Why Home Prices Are Staying Storing During COVID-19

When COVID-19 first shut down the entire United States economy, experts forecasted that it would halt the steady rise in home prices that had been underway for the past several years. However, the opposite effect has happened. Despite forecasts of doom for the real estate market, home prices are continuing to increase. Sales of homes are still happening, and there is no sign that the housing market is on the verge of collapse, despite the fact that millions have fallen behind on their mortgages. Here are four reasons why home prices have remained strong even though the economy is in a borderline depression.

Few People Are Selling

As you know, there are two parts to determining the level of prices in the housing market. The two ingredients of pricing are supply and demand. Even though many states are just emerging from lockdowns, there are still some people who are buying. For them, the problem is that there are still not enough homes available on the market. Those who would have been sellers are putting off their plans to move during the usual spring season. They may also be hesitant about upgrading homes in the face of economic uncertainty. Finally, many sellers took advantage of the fact that home buying seems to be a year-round activity these days and put their house on the market in the winter before COVID-19 hit. As a result, the buyers who are in the market are competing for the same handful of properties and are willing to pay higher prices for them.

Mortgage Rates Are at an All-Time Low

Predictably, the Federal Reserve Bank responded to COVID-19 by slashing interest rates down to zero. Some homebuyers are reporting the fact that interest rates on mortgages have fallen to roughly 3%. This makes it incredibly affordable for people entering the market to purchase their homes. Anyone whose income has not taken a hit from the pandemic and is in roughly the same financial position as before can take advantage of these low rates to purchase. With interest rates lower, they can afford to pay more on the purchase price of the home. Not only this, but banks are still lending during the pandemic. The Federal Reserve Banks has taken unprecedented steps to keep credit flowing throughout the economy, so financial institutions have not pulled up their stakes as they did during the Great Recession.

There is Still Pent-Up Demand

For a couple of years, individual homebuyers have been struggling to find properties to buy and have been getting shut out of the housing market. This has been especially true with homes on the lower end of the market. Families have faced competition from investors and institutions who were also trying to profit from the housing market. As a result, many either put off buying a home or simply gave up out of frustration. Now, these buyers may be re-engaging in the housing market, knowing that they may be facing less competition right now. In other words, they may be trying to use the pandemic to their advantage to finally be able to find a home. Buyers who have waited on the sidelines, hoping to have their opportunity, may be plunging into the market now and putting a floor under prices.

People Are Trying to Be Opportunistic

Some buyers may be hoping that there are motivated sellers in the market who will cut the prices on homes into a range that they find more affordable. This is also helping to backstop housing prices. When sellers price their homes low enough, they end up with multiple buyers. Then, a bidding war for the property ensues. Enough people trying to bargain hunt in the market will have the effect of driving up prices. There is a perception that there are bargains to be had right now, even if that is not exactly the case. As good news about efforts to contain the coronavirus, buyers will enter the market thinking that they can get the last bargains before prices resume their steep climb.

The truth is that nobody quite knows the direction of housing prices as the effects of COVID-19 in the long term remain to be seen. So far, the housing market seems to be holding up much better than they did during the Great Recession. Massive government financial backing seems to be buttressing the housing market and maintaining prices.