In my area, suburb of Kansas City, housing prices are shooting up. Houses rarely stay on the market for more than a week. They are also building apartments and condos like crazy and they are going HIGH.
Wait, isnt the economy down? Arent we in a time of 30% unemployment? Arent the majority of 18-29 year olds still living with their parents?
One would think you couldnt give away a house right now.
So questions;
What are you seeing in real estate in your area?
How can you explain it with the current economic climate?
We aren’t at 30% unemployment. The official rate is currently at 8.4%. That said, the “true unemployment” rate is almost undoubtedly is higher than that, as it only captures people who do not have a job and are actually looking, and it doesn’t count unemployed people who aren’t currently looking for work – either they’re discouraged and stopped looking, they are sheltering at home, or they aren’t working because they’re temporarily acting as caregivers for others. Even so, if true unemployment is above 8.4%, it almost certainly isn’t anything close to 30%. Source
The current unemployment situation is very uneven – it’s substantially worse for younger people, African-Americans, and Hispanics. (Source)
Many 18-29 year olds do still live with their parents, though it’s barely a majority (52%, in fact; source). They aren’t home buyers, but that demographic group didn’t make up a large number of home buyers before 2020, either.
Interest rates are at or near all-time lows – so if you do have money and are in a relatively stable employment/financial situation (which also likely means that you’re over the age of 35), it’s a great time to buy.
Anecdotally, I’ve read numerous stories about people who have been living in urban areas, who now suddenly want to move to smaller cities or rural areas.
Demand > Supply. COVID-19 hung over the usual “buying season” like a cloud, and now that places are opening up, it’s easier to sell houses. Just picture a backed up pipe; relieve the blockage and the raised pressure forces the liquid to shoot out.
Many elements of the population are entirely unaffected financially. Nobody in my immediate family was affected, for instance (none of us share industries, although to be fair my mother is retired). Too bad we’re not rich enough to buy property
People on both ends of the income scale lost money, but more people on the lower end of the scale lost money than on the upper end of the scale. In addition, people on the lower end of the scale couldn’t afford to buy property anyway. In Canada, roughly 20% of workers lost income, about half losing all their income for a period of time, and the other half seeing reductions.
Some wealthier people decided to invest in the stock market instead of buying property, and also made some money that way. They can sell stocks now to help increase their down payments, too.
Lastly, many people who were “house poor” and might have sold their houses have been able to defer mortgage payments. They’re not selling, so the supply is artificially constrained.
This analysis has flaws, of course. In Canada, many new immigrants (who are legal residents) buy houses. We got many fewer immigrants this year due to COVID-19. If the immigration floodgates suddenly opened, demand would be even higher.
The Santa Fe market was pretty hot before the pandemic; and after a brief hiatus when nothing much happened, seems to have resumed just as hot. If moving away from big urban centers is a theme, I guess somewhere like Santa Fe is attractive.
But setting aside local phenomena, on average things nationally do just seem to be picking up where they left off in early 2020.
I guess it’s consistent with other asset prices - the stock market has (overall) recovered all of its losses. The U.S. broad market is up 7% on the year, the world ex-US is down 3%. This is a consequence of those market indices being dominated by megacap companies that are either favored by the virus (like Amazon) or harmed in the short term but big enough to survive. The fact that interest rates are likely to be near-zero for the forseeable future offsets any short-term economic contraction.
Assuming work from home catches on after this pandemic is over, I could see an exodus from high cost of living large cities to lower cost of living large cities. I don’t know if the building boom OP is seeing is related to that, but in the long run I think that could happen.
My wife manages the mortgage operations of a fairly large bank. They are slammed with applications and working OT to keep up. The numbers are setting records, at least for them.
The economic climate here (DFW, Texas) seems its typical boom-town self. I still encounter “Help Wanted” signs at most businesses I visit, and construction continues at a frantic pace. Houses are going up everywhere, and it’s nearly impossible to hire a contractor for home repair (they’re all spoken for).
Wife has mentioned this as well. The largest portion of the mortgages are in the outlying counties. People are building further outside the city and apparently willing to accept serious commutes now. These typically have large lots (1-5 acres) and huge houses. She’s noticed a few other trends, people are stretching themselves to the absolute limit on payments, etc. Also quite a few new houses are including safe-rooms. This is new to her, but presumably these are options with some builders.
This is the weirdest recession I’ve ever experienced. Most of my family are in industries that are booming. Wife is in mortgage biz, kid is at freight company with large PPE contracts, Sis is frontline medical, dealing with Covid ward in their hospital, etc. The rest are retired or passive income. I don’t know anyone personally whose finances have suffered this year.
The Canadian housing market is often different from that in the US, but the market here in Ontario is also very hot, as indeed it has been for years. I’m not sure I really understand why. You’d think the COVID situation would make it difficult even to show a house, but they’re selling like hotcakes and prices are up significantly over last year. Someone pointed out that if it were not for restrictions on immigration due to COVID, it would be even hotter. Most immigration consists of skilled well-paid individuals who are among the most likely home buyers.
Thank you! For those who may be unfamiliar with what those terms mean:
Note that the above says that “U6” (which includes those who would like to work full-time, but are only able to get part-time work) typically adds 2-3 percentage points to the official rate (U3); at this point in time, it’s adding about 6 percentage points.
ISTM that the premise of the question is flawed, in that it assumes that there is widespread economic hardship as a result of the pandemic, in particular pointing to the unemployment rate. Most measures of economic hardship trotted out - including most notably the unemployment rate - ignore the effects of stimulus money. As to unemployment in particular, 69% of unemployed people are making more in unemployment benefits than they were in salary and benefits when at their jobs. While people on temporary unemployment assistance are not likely rushing out to buy houses, it’s possible that they are less likely to sell as well, which reduces demand. More importantly, it means that the unemployment rate - whatever it is - is not really a valid guide to economic distress at this time. In addition, as discussed elsewhere on this MB, PPP loans have been a huge windfall to a lot of middle and higher level businesses, and many of these people can afford all sorts of things that they might not have previously.
That said, the primary drivers of the price increase are most likely the factors posters have already pointed out, i.e. 1) record low mortgage rates, and 2) a move to the suburbs, where buying houses vs renting apartments is common (vacancies are up and rents down, in major cities).
People with house buying incomes are fleeing the cities directly and indirectly because of the pandemic. Many of them are working from home now and expect that to continue in the future. If you want to social distance yourself the city is not the place to do it. And although I don’t think it’s a great financial strategy, many are seeing a major recession coming and want to get into a house before it happens.
In the UK prices are going up partly due to the Stamp Duty holiday. Stamp Duty is basically a sales tax on properties. Prior to July 2020 Stamp Duty was 0% on houses up to £125K, 2% between £125K and £250K, 5% between £250K and £925K, 10% between £925K and £1.5 million, and 12% beyond that. From July 2020 until the end of March 2021 it’s 0% up to £500K, 5% between £500K and £925K. After that the rates are the same as before. So before where you’d see properties priced at £249950 to be under the stamp duty threshold now they can price them much higher and it’s still a good deal for the buyer.
My daughter and SIL are in the process of moving into their first house. It was insane while they were looking - so many houses in their price range had multiple contracts within the first few days on the market. They were able to get a good deal on the one they bought because it’s just 2 bedrooms. They wanted more, but they wanted their own place more than a spare bedroom.
I thought the price was on the high side, but they’re happy and they can afford the payments, so I guess that’s what matters. To rent something similar would cost at least as much as their mortgage. So, yeah, in southern Maryland, the market is a bit crazy.
I agree the low mortgage rates, people seeking lower density living, people assuming commutes and office-work will be curtailed in the future, and less available housing is driving this trend.
Also, I have seen articles discussing the “K-shaped recovery”, where many people are minimally affected financially and are seizing the opportunity to make a change (people who likely have jobs that can be done remotely), while many others were living marginally prior to the pandemic are more adversely affected financially (people with low/no reserves who do not have jobs that can be done remotely). The former get the headlines for buying houses; the latter get the headlines for being unemployed - both are happening at the same time.
According to Star-Tribune Lumber prices through the roof the cost of lumber going in new houses is about $10,000 more this year, due to an onslaught of remodeling and some mill shutdowns. Factoring the “replacement” cost of a house could include this as a reason for higher prices.
Low mortgage rates are a huge factor right now. They could trickle upward and perhaps have some effect but if interest rates ever rise significantly in this country then the things will get really bad. It could be the start of another Great Depression, GDII - The Big One.
My parents live well outside the city, and their neighbors put their house on the market last week. It sold the first day, to the first caller, for the asking price. The buyers only saw it via a video tour.
Note: It’s possible buyers may have seen the house and were familiar with it. I’m not sure of that aspect of the sale.
