Each year the Harvard Joint Center for Housing Studies releases their State of the Nation’s Housing Report. In this year’s report, the focus surrounds the U.S. economy and housing markets lasting effects from the Coronavirus pandemic. From high demand, soaring prices, and demographic challenges, this report details the current state of the housing market and its effect on Americans throughout the country.
High Demand and Low Inventory
The housing market is experiencing record-high demand for homes despite historically low supply over the course of 2020 and 2021. The inventory of homes for sale was already low and when the pandemic hit, many sellers were hesitant to put their home on the market due to the uncertainty. Over the course of the year, from March 2020 to March 2021, the inventory shrank by 30%. Homes on the market were lasting an average of 18 days.
The combination of low supply, low interest rates, and robust demand caused prices to skyrocket at the fastest pace in over a decade. In 2020, prices rose an average of 4.2% in the first quarter of the year, up from 3.5% in 2019. But in 2020, prices rose 10% in December to 13.2% across the country in the first quarter of 2021. This is the first double-digit price increase since 2014.
In conjunction with high prices and low inventory, many buyers are bidding thousands above the asking price just to get their hands on a home. This price increase combined with the shortage leads many people to believe that a housing crisis is emerging but conditions are still drastically different from 2008.
Costly New Construction Homes
From rising lumber and material prices to continuing constraints on residential development, there are numerous barriers to housing production. In many areas, the rising home prices is influencing land prices as well. Along with land prices rising due to demand, the pandemic has also had an impact on the labor market. The construction industry job openings fell sharply from 309,000 in early 2020 to approximately 268,000 in 2021.
Another issue with new construction homes is the cost and scarcity of building materials due to supply chain issues from the pandemic. Lumber prices alone rose 83% year over year in March 2021 which added about $36,000 to the cost of a single-family home. These costs have led many people to purchase existing homes instead.
Over the course of 2020 and into 2021, many households across the country were facing financial struggles as a result of the pandemic. According to U.S Census Household Pulse Surveys, nearly 40% of households had lost income and 9% were behind on mortgage payments. These income losses have impacted homeownership possibilities for many across the country.
Under the CARES Act, 7.1 million homeowners or 14% of all mortgage holders were able to enter forbearance to protect themselves from losing their homes. As the economy has begun to shift, about 4.8 million have been able to exit these programs by March 2021. For those still in forbearance, the period will end in July 2021, so many of these homeowners will either have to begin making monthly payments or sell their homes. The American Rescue Plan Act has set aside $10 billion to assist struggling homeowners to avoid foreclosure which can be a critical lifeline for those who are facing the loss of their home.
The Outlook for 2021 and Beyond
Over the course of 2021, the economy and the housing market will still recover from the amplified issues from the Coronavirus Pandemic. While policymakers have made changes to assist with the financial struggles facing many Americans, there is still support that is needed for the market to return to its pre-pandemic state. The market will continue to fluctuate as demand slows, construction grows, and prices steady. There is no telling when the market will return, but time will tell.