By Rhett Wilkinson
Home values in the United States exploded during the last year, as interest rates and home inventories both hit record lows.
Report after report is finding good news for home sellers, including:
- The Federal Housing Finance Agency’s Home Price index released last month revealed that prices were up an incredible 11 percent from Nov. 2019 to Nov. 2020.
- Home values swelled in December by 3.2 percent over the prior quarter. That’s the biggest jump in at least 25 years, a new Zillow report says.
- U.S. housing gained nearly $2.5 trillion in value in 2020 – the most in a single year since 2005, with the full stock of U.S. housing now worth $36.2 trillion, according to a new Zillow analysis.
- Homebuyer demand is up 60 percent, as 13 percent fewer homes are being listed than this time last year. It’s made for a housing market in 2021 that is even hotter than 2020, according to Redfin.
But this upsurge in home values took place during the pandemic. Is the growth sustainable during and after COVID-19?
For Jeff Tucker, senior economist at Zillow, the answer is an absolute “yes.”
“I think absolutely it is,” Tucker said, citing the price appreciation that is really being driven by a combination of the “fundamentals” of not enough houses and a lot of people who want to buy them.
The demand side is really driven by demographics – particularly age, he said. Because an unusual amount of people were born around 1990, Tucker said, an unusual amount of people right now are entering their 30s – the age where they want to buy their first home.
“That demand hitting that low supply of homes is what is driving that price appreciation,” Tucker said.
The pandemic is keeping people at home more means that people currently need more space in their residences. So for a lot of people, that means moving from an apartment to a “dispatched” house – and “that can go from renting to owning as well,” Tucker said.
He said the pandemic has “kind of accelerated the decision for a number of people to buy their first home.”
Redfin, the online real estate company, also fully expects the market to remain hot well into 2021.
“There will continue to be a lack of new listings in early 2021,” Redfin chief economist Daryl Fairweather said. “But rock-bottom mortgage rates will have buyers eager to purchase the few listings that do hit the market. So I expect bidding wars, fast sales and double-digit price growth to continue. We are at a point in the pandemic where would-be sellers are expecting to be vaccinated in the next 6 months, so they may be waiting for that before selling. Once many more people are vaccinated for the coronavirus and more homeowners start to feel comfortable listing their homes for sale, the current deadlock of housing supply should start to loosen. Mortgage rates could inch up at the same time, which could bring a slight chill to the scorching-hot seller’s market.”
Personal finance company MyWalletJoy agrees, finding that one in six Americans who haven’t purchased a home since the beginning of COVID-19 are still planning on buying one within two years.
“Although it has been a tough year for Americans in all aspects of personal finance and big life moments, we are happy to see that optimism around buying a home is still very much alive,” MyWalletJoy spokesperson Yvette Ramos said.
Tucker says that it also seems like the pandemic has also sparked the purchasing of second homes or vacation homes, which could be driven by the lack of international travel by wealthier people.
Or, as Tucker suspects, is that a lot of people who work in some way are working from home at least part of the time. A vacation house is usable for work if you can bring your work with you, Tucker said.
Also, low mortgage rates, which should remain low for the foreseeable future, are available. That makes higher prices on houses more affordable on a monthly basis because the interest that owners must pay each month is less, Tucker said.
The surging growth in home values is certainly viable after the pandemic because those 30-somethings who bought a house this year aren’t expected to turn around and sell it just a year later and go back to renting, Tucker said.
“We don’t expect it to be rolled back afterwards,” he said.
It’s especially true that the home-value growth is sustainable after COVID-19 given that several million people around age 30 are still not homeowners. That means several million potential buyers are “still on their way,” Tucker said.