The housing market is a complex entity that can confuse most Americans, especially when considering the various factors that influence it. Further adding to this entanglement that consumers must unravel are the impacts from the COVID-19 pandemic.
While the housing market in the U.S. had certainly seen better days at the onset of the health crisis, things are reportedly starting to trend upward and a rebound may be coming to fruition.
“The U.S. housing market has shown one of the strongest recoveries from the impact of COVID,” said BBVA USA Head of Mortgage Banking Murat Kalkan. “At the beginning of the pandemic, a V-shaped recovery was expected for the economy, for the most part. However, the U.S. Housing industry has ended up being one of the few economic aspects that actually achieved it.”
This is especially true, according to Kalkan, in the most recent month where data is available. According to the National Association of Realtors, existing home sales in August were up 10.5 percent year-over-year and reached the highest level since December 2006.
Furthermore, according to a Wall Street Journal article published last month, making the topic more interesting is that millennials could be behind the recent rebound. However, with the uptick in demand, and the low interest rates, some could point to a similar situation to 2008 when the housing bubble popped. Kalkan cautions against this type of notion.
In all, things are looking up for the latter half of the year for the housing market, and that momentum could swing into 2021.
BBVA USA Head of Mortgage Banking Murat Kalkan
The uptick in demand
The demand in the U.S. housing market continues to be high, and according to Kalkan, and there are two main reasons why. Both, ironically, are pandemic-related effects.
- Americans are looking for more living space due to the pandemic, especially in a work-from-home environment.
- Mortgage rates are at all-time low levels, which helps with affordability.
The demand exists, according to Kalkan. However, the supply is the item in question.
“Supply remains challenged as home sellers are holding off on putting their home for sale for a variety of reasons,” he said. “People are worried about virus exposure in home showings, and their plans might have also changed due to pandemic. They’re also afraid of not being able to find a new place effectively, or won’t be able to get approval for a new mortgage - given the tighter risk criteria from the lenders. Then of course, there’s pricing. People might be waiting and hoping to see home prices go up even further given the strong demand. Low mortgage rates also allow people to refinance and bring down the monthly costs for the current house they own.”
Despite the low supply amid a demand-saturated housing market environment, there has been a recent improvement in the number of new listings, and builder confidence data surged back up to above the highest point reached in 2019, based on findings from the National Association of Home Builders.
“Given the expected continuity of the low rate environment, strong demand for home buying, and recovery of the economy, we should expect to see strong purchase applications going into 2021,” said Kalkan.
The Millenial factor
Millennials are the generation known as the tech generation, the echo generation, along with other monikers. However, they’re also known for their reluctance to buy homes. There have been many reasons for this trend among millennials, according to Kalkan.
It is inevitable for them not to constitute the largest generation to buy homes.
“Homeownership rates for younger Americans have fallen significantly as millennials emerge to young adults,” said Kalkan, “The median age of a home buyer increased to one of the oldest levels with 46 years old, according to the National Association of Realtors. Now, most of these factors still continue to play out very strongly in why this generation is hesitant to buy, but we have now reached a time where the majority of home buyer demographics overlap with millennials. It is inevitable for them not to constitute the largest generation to buy homes.”
Just like there are reasons why millennials have avoided homeownership, the tide seems to be turning, and twists are emerging that are shifting the narrative.
With the high demand currently taking place, current millennial home buying trends, and the traumatic events of 2008 still fresh in most Americans’ minds, it begs the question of whether the current pattern could yield similar results to 12 years ago.
“The strong housing demand and the supply shortage leads to a significant price increase,” said Kalkan. “However, macro factors, along with latest trends in new listings and housing starts, give signs that supply will start to match this demand, and that some of the current factors slowing it down should eventually disappear. This will lead to pricing stabilization within the market in 2021, unless forbearances lead to a significant level of delinquencies and foreclosures. That could risk a price drop. However, overall, it is early to jump to those conclusions, as we’re just now starting to closely monitor the effects of expiring forbearances, and if they are positive or negative. ”