Timeline Of The COVID-19 Housing Market

• From the beginning of 2020 to now, the median sales price rose 27.5%.
• Even as mortgage rates start to inch back up, demand for homes is still strong, with 75.7% of sold listings selling in under 30 days in the third quarter of 2021.
• At the start of the pandemic, homes spent an average of 62 days on the market, with just 19.6% of homes selling over asking price. Now, they’re spending just 29 days on the market before selling, and 47% are selling over asking.

In the midst of a pandemic that sent communities and countries around the world into lockdown mode to prevent the spread of the deadly disease caused by the SARS-CoV-2 virus, the housing market did a curious thing – it boomed.

Even as they were working from home, ordering takeout, shopping online and donning masks anytime they ventured out of their homes, Americans were (and still are) buying houses at an impressive rate, and at unprecedented prices. In previous years, homeowners could typically expect a few percentage points of appreciation each year. At the start of 2021, home sales prices were up 11.8% compared to that same period in 2020. Since the start of the pandemic, sales prices have gone up a total of 27.5%.

What happened that made the market go into such a frenzy? To get the full picture of what went down during COVID-19, how and why the market surged so dramatically and what might happen next, Rocket Homes℠ analyzed home sales data from the past 2 years. Here’s what was found.

Where The Market Was Before COVID-19

By the end of 2019, the median sales price was $260,345. Of the homes that were sold, 18.7% of them sold over asking price. Half sold in under 30 days, and the average amount of time a home spent on the market was 54 days.

Late in 2018, mortgage rates were inching up near 5% territory, but they’d been falling throughout 2019. In the fourth quarter of 2019, the average rate for a 30-year fixed-rate mortgage was 3.70%, according to Freddie Mac. In their December 2019 forecast, Fannie Mae’s Economic and Strategic Research Group predicted that mortgage rates would only decrease slightly in the coming years, from an anticipated average of 3.9% for 2019 to 3.6% for both 2020 and 2021.

The monthly supply of housing, which is the ratio of the number of single-family homes for sale to the number of homes that sell each month, was at an average of 5.4 months in Q4 2019, according to data from the Census Bureau and the Department of Housing and Urban Development. In recent years, this number has typically fluctuated between 5 – 7 months’ supply, indicating a relatively balanced market. When months’ supply is low, it means that buyers are competing for fewer houses, which gives sellers the advantage and pushes home prices up. When months’ supply is high, buyers have more choices, which keeps home price appreciation more moderate.

Then, in December 2019, the government in Wuhan, China, reported an outbreak of pneumonia of unknown cause, and everything changed.

A Short-Lived Recession Begins And WHO Declares A Pandemic

As the new virus quickly spread across continents, everyday life – and with it, the economy – was upended. Late in January 2020, the first confirmed case of what would soon be called COVID-19 was found in the U.S. By February, the country was in a recession.

In March, the Dow Jones Industrial Average broke multiple records in a week’s time. On Monday, March 9, the Dow dropped an unprecedented 2,014 points in a single day. Unprecedented, that is, until Thursday, March 12, when it dropped 2,353 points. Again, on Monday, March 16, it plummeted 2,997 points, making this the single-worst day in history for point losses and the second worst single-day percentage drop, tumbling nearly 13%.

On March 11, the World Health Organization (WHO) declared COVID-19 a pandemic, officially recognizing the worldwide spread of the disease. A week later, California became the first state to issue a stay-at-home order. Other states quickly followed suit. In many places, only essential businesses were allowed to remain open. However, government restrictions weren’t the only thing keeping people at home. According to a paper published in the Journal of Public Economics that utilized cell phone data to track visits to businesses, the majority of the drop in consumer activity can be attributed to individual choice – as people chose to stay home because they were afraid of getting sick – regardless of what legal restrictions were in place.

Stay-at-home orders presented a challenge for the real estate market, especially as the rules on whether real estate was considered an “essential” business (and thus exempt from shutdown orders) varied from state to state. Open houses were cancelled, showings moved online and temporary flexibilities from the major mortgage investors were put in place to allow for exterior-only or desktop appraisals.

By April, the shortest recession in U.S. history was over, according to the National Bureau of Economic Research. That same month, unemployment spiked to nearly 15%, a rate not seen since the Great Depression.

The Housing Market Heats Up And Stays Hot

How did the U.S. go from recession to housing boom so quickly? As everyone adjusted to the “new normal” and government restrictions eased, tools like masks and social distancing, along with legislation like the CARES Act – which included direct stimulus payments to eligible households – expanded unemployment benefits and financial assistance for small business and helped the economy begin to recover. By October 2020, the unemployment rate was at 6.9%, already more than half of its previous high. And in December, rollout of the COVID-19 vaccines began. By mid-April of 2021, they became available to the general public, providing another boost to the slowly reopening economy.

Mortgage interest rates were lower than ever and after months spent cooped up at home, many Americans were looking to upgrade to spaces that better suited their needs. So, they started buying homes.

At the same time, housing supply issues that predated the Coronavirus pandemic were exacerbated by the increased demand as well as material and labor constraints on new home construction. Even though rising prices are generally good news for potential sellers, a number of homeowners have reported being reluctant to sell because they don’t want to have to buy a new home in the tight market, which may also contribute to the problem of limited supply.

The result of all this? The number of homes that sold over asking price steadily increased, starting at just under 20% at the beginning of the pandemic and reaching 47% in Q3 of 2021. The number of homes that sold in under 30 days shot up during this same time period, from 47.8% of homes sold to 75.7% of homes sold.

The average number of days homes spent on the market also went down. By Q3 of 2021, time on market was more than half of what it was in early 2020. And in August through October 2020, months’ supply of homes reached its lowest point in almost two decades: 3.5 months’ worth of supply.

All of this illustrates just how hot the market became during the pandemic. With high demand and limited supply, buyers had to move fast and pay top dollar to get into the homes they wanted. This also made it harder for first-time home buyers and those with smaller budgets to get their foot in the door, as bidding wars ran rampant, homes disappeared off the market almost as soon as they were listed and buyers had to sweeten the deal with things like all-cash offers, waived contingencies and larger down payments or earnest money deposits.

Interest Rates Hit All Time Lows

One of the biggest stories of the pandemic housing market was the record low mortgage interest rates. In the second half of 2020, the average rate on a 30-year fixed-rate mortgage dipped below 3% and stayed there until early 2021, according to Freddie Mac.

In January of 2021, the average rate reached its lowest point ever: 2.65%.

Even though rates have fluctuated more recently and are forecast to move up slightly, they’ve remained near historic lows. At the start of the fourth quarter of 2021, the average rate was just 2.99%.

Low rates have fueled both a purchase and refinance boom, as homeowners look to take advantage of the savings. To understand why these low rates were and are such a big deal, consider this:

If a homeowner wanted to purchase a $300,000 home when rates were at their 2018 high of 4.94%, they’d have a monthly payment of $1,599 and pay $275,814 in interest over the life of the loan. If they purchased that same home when rates were at their historic low of 2.65%, they’d have a monthly payment of $1,209 and pay $135,201 in interest. That’s a nearly $400 difference in their monthly payment and a whopping $140,613 in interest savings.

Homeowners Gain Tens Of Thousands Of Dollars In Value

As high demand and limited supply pushed up prices, homeowners saw their home values shoot up.

At the start of the pandemic, the median sales price was $260,062. Now, it’s $331,490 – a $71,428 increase.

However, it’s likely that this high rate of appreciation won’t continue indefinitely, as the market is showing signs of cooling off.

What’s Next?

Even as more and more people return to their pre-pandemic “normal,” it’s important to remember that COVID-19 isn’t over yet. At the start of November, only 58.3% of people in the U.S. were fully vaccinated, with 67.2% having received at least one dose. Schools have struggled with reopening, which has made reentering the workforce difficult for parents, particularly women. The unemployment rate continues to creep back down, but still isn’t back to prepandemic levels. In September, it was at 4.8%.

When it comes to the pandemic housing market, however, there may be some good news on the horizon, as many experts are seeing signs that it may finally be cooling a bit.

Although they believe supply will remain an issue, Fannie Mae’s ESR Group expects price growth to decelerate in 2022, and that mortgage rates will be an average 3.3% next year – slightly higher than this year, but still very low historically.

Insufficient housing supply has been a problem long before the pandemic, and will likely continue to be an issue. According to Freddie Mac’s Economic and Housing Research group, the U.S. was 3.8 million homes short of having an adequate housing supply as of the end of 2020, largely due to the fact that there aren’t enough new homes being built to keep up with demand. However, in September, the monthly supply of houses was back up to 5.7, indicating a slightly more balanced market. If this trend continues, buyers can look forward to an easier time navigating the market, as price appreciation moderates and competition eases.