Three long years after the COVID-19 pandemic began, we are finally back to living pretty much like we did in “the before times.” Masks have become a relic, and many of us are back to working in the office. But one aspect of life still looks very different: Housing.
COVID changed the housing market forever. In this article, we’re going to take a look back at the rollercoaster ride of the last five years of housing market shifts. We’ll show you snapshots of:
The stable pre-COVID market
The panic in the early days of the pandemic
The unsustainable growth as the pandemic continued
The crash-free post-pandemic market
We’ll also explain what this means for real estate agents and those who want to join the industry. In fact, we’ll show you how you can use this market history to land more clients and close more deals!
Characteristics of the Pre-COVID Housing Market
As a result of the housing market collapse of 2008, everyone in real estate was playing it safe throughout the 2010s. Builders were only building homes they were sure they could sell. Buyers were only buying homes they were sure they could afford. And lenders were only issuing loans they were sure borrowers could repay.
This strategy brought about a slow and steady market recovery, followed by complete stagnation.
From Q1 2017 to Q1 2020, the median home sales price in the US rose by just $16,000, from $313,000 to $329,000.
The market in the late 2010s was characterized by:
Little value growth
A fair balance between buyer and seller negotiating power
Homes sitting on the market for around two months during the summer and three months during the winter before selling (it is perfectly normal for homes to take longer to sell in the winter)
Immediate Market Shock in the Early Days of the Pandemic
Do you remember the fear and uncertainty that gripped the world in March 2020? Shelter-in-place orders were issued in many states across the U.S. Other countries were closing their borders. Supply lines crumbled and businesses shuttered. The unemployment rate hit an unbelievable 14.7%. People were dying.
For most would-be homebuyers, this period of economic uncertainty was no time to search for a home. What if they lost their jobs? What if an avalanche of foreclosures flooded the market, driving property values down? In some states, real estate agents were deemed non-essential and ordered to stay home, preventing buyers from touring homes entirely.
It’s no surprise then, that May 2020 saw the number of homes sold drop by 34.2% year-over-year. Or that median sales prices actually fell by 2% month-over-month during a season when prices traditionally increase.
Housing Prices Skyrocket as the Pandemic Goes On…and On…and On
It only took the housing market a month or two to rebound from the early pandemic slump. Buyers quickly realized that 2020 was actually a great time to buy for several reasons:
Interest rates plummeted to new record lows. Rates were below 3% for much of 2020, making homeownership more affordable.
Everyone was spending lots of time at home. This helped more people see the value of investing in their homes and encouraged buyers to pursue homes with more space or added amenities.
Remote work allowed buyers to relocate to more affordable areas. With workplace proximity being less important for many office workers, people were able to branch out into the suburbs or rural areas where they could afford to buy a home.
Suddenly, demand for homes skyrocketed. But supply hadn’t changed. In fact, we were still under-building as a lingering effect of the housing market collapse. And, as more Baby Boomers opted to age-in-place, inventory that would normally open up remained occupied.
This high demand and low supply created an intense seller’s market in which:
Sellers were getting multiple offers and held strong negotiating power.
Homes sold in record time. In the summer of 2021, the average listing was on the market for only two weeks.
More buyers were paying over the list price. In January 2020, around 20% of homes sold for over asking. That skyrocketed to nearly 60% of homes by May 2022.
Home values skyrocketed. From the reasonable $322,600 median sales price in Q2 2020, prices climbed to $479,500 in Q4 2022. Some of the fastest-growing real estate markets saw home values increase by nearly 30% year over year from 2021 to 2022.
The Lack of a Subsequent Market Crash
Naturally, the pandemic-era growth was never sustainable.
When the Federal Reserve sharply increased interest rates in late 2022/early 2023 to help fight inflation, we saw demand for homes immediately dip. But, as we predicted in our housing market expectations for 2023, we never saw a housing crash. This is mostly because the supply of homes is still low. Because of supply chain problems and increasing building supply and labor costs during the pandemic, builders were never able to keep up with the demand.
So, while the median sales price has come down from $479,500 in Q4 2022 to $416,100 in Q2 2023, this is more of a “correction” to return the housing market to more reasonable prices than a crash. And, in fact, many markets are still growing as we wind down 2023.
The Lasting Impact of COVID-19 on the Housing Market
In some ways, the housing market has been changed forever by COVID. For example:
Remote work makes relocation more viable. Many workers are no longer physically tethered to their workplaces. This gives them the freedom to relocate long distances more easily.
Buyers are more willing to move sight-unseen. In 2022, CNBC reported that 47% of buyers who’d purchased in the previous two years made an offer on a home without physically touring the property. And with more people making long-distance moves, this type of “virtual buyer” will remain more common than pre-pandemic.
Getting on the property ladder is more difficult. Prices may have dipped a bit, but with homes retaining much of their pandemic-era growth, it is more difficult for first-time buyers to find an affordable home.
What This Means for Real Estate Agents (and Those Who Want to Join the Industry)
Here are the key takeaways for agents in a post-pandemic world.
Proptech is the future of real estate. If you’re not already maintaining an online presence and offering virtual tours for remote buyers, it’s time to update your business operations.
Prospective buyers need help to make homeownership more affordable. Get up-to-date on local homebuyer assistance programs and educate the renters in your market on low down-payment options.
Don’t let a slower market prevent you from joining the industry. Slower markets give you time to strategize and may have less competition from other agents. We have several tips for starting a successful real estate career during a market correction for those interested.
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