Photo Credit: Andrew Delory COVID-19 changed industries worldwide, and one that will see lasting effects is real estate. Andrew Delory is a real estate attorney who has watched the market rise and fall for years and has some predictions about what will happen moving forward, and how the pandemic will continue to impact the real estate market for years to come. Here’s Andrew’s breakdown of the four reasons the housing market is and will stay, red hot:
Millennials – Millennials are the largest population on earth and make up a huge portion of the home-buying demographic. During the pandemic, many Millenials had to put off their home buying dreams, but they never abandoned them. Now, those same Millenials are ready to move onto the homebuying journey and are in a better financial position to do so than pre-pandemic. Delory says that this is because “the Federal Reserve reports that Americans gained $13.5 trillion dollars in wealth during between April 2020 – January 2021 (by comparison in the 2008 recession Americans lost $8 trillion). Government-mandated student loan forbearance, coupled with reduced commuting and general life expenses left millennials stacking their cash during the pandemic. This cash got redirected to eliminating credit card debt. A couple of well-timed full-sends into a $GME or $AMC didn’t hurt wallets either. Millennials are now ready to hit the market as highly competitive buyers.”
Supply and Demand – The pandemic further disrupted the natural ebb and flow to the real estate market, creating an even larger imbalance in supply vs. demand for homes to purchase. According to Delory, as of May 2021, the Federal Census reported that the month’s supply of housing inventory is 2.4, the lowest recorded measurement since at least 1999. A total of around four million new homes are needed to meet the current shortfall in the housing market. There were already more buyers than sellers, but during the pandemic older homeowners who would traditionally look to downsize also decided to stay in their homes instead. These sellers found the same lack of options for themselves to purchase, and in many cases, the extra space became a premium with family members moving home or extra daycare duties.”
Lumber Prices – Several contributing factors have led to a lumber shortage, as the pandemic caused production slowdowns at many lumber mills, contributing to a rise in prices. According to the National Association of Home Builders, the cost of lumber has increased by 300% since April 2020. Delory says that “Everyone stuck at home during the pandemic was looking for a DIY project, which caused a significant demand for home renovations and expansions. This huge influx of unpredicted home projects distressed the existing stock of lumber and supplies. Further, in March 2021 the Suez Canal blockage disrupted the world supply chain even more and caused a massive delay in global shipping.”
Interest Rates– Interest rates remain at historic lows, giving prospective home buyers more borrowing power, to the tune of $40,000 more purchase ability on average, which Delory says is all due to the actions of the Federal Reserve. During the pandemic, the Federal Reserve did what Delory equates with dancing the “two-step”. “Banks were allowed to borrow money from the federal reserve at 0% interest rates, meaning that banks could borrow money for literally zero and offer it out to consumers for cheap. Act Two, was to purchase mortgage-back securities at a record rate. This meant that a bank could lend their cheaply-borrowed money to a consumer, make their profit and the government would buy the mortgage and be on the hook if the consumer eventually defaulted.” More purchasing power, offset by low-interest rates meant the mortgage payments remained close to the same, even with the larger purchase price.
Andrew Delory is a Massachusetts-based real estate attorney at Delory Law and owner of his own real estate brokerage, Tutto Properties, LLC. He has a passion for helping people understand the real estate market and is excited to help a new wave of millennials embark on the home buying process. Connect with him through his website and social media, @delorylaw.
Written in partnership with Ascend
