3 ways the pandemic shaped the housing market
Government policies and the rise of remote work contributed to declining affordability, but real estate agents have an opportunity to show their value.
Key points:
- Two reports released by Bright MLS delve into the effects of pandemic-era policies on the U.S. housing market.
- Affordability issues may persist for the next 3-5 years, said Bright MLS's chief economist.
- Agents are critical to helping consumers in the "very uncertain and, in some cases, anxious process" of buying and selling homes.
The Covid-19 pandemic may be over, but its effect on the housing market could be long-lasting.
Two recent studies from Bright MLS looked at the impacts of pandemic-era policies and the rise in remote work on housing and affordability. Among the conclusions: Expect things to remain challenging for the next few years, Bright MLS Chief Economist Lisa Sturtevant told Real Estate News.
Here are three ways that the pandemic shaped the real estate market — as well as consumer and agent behavior — according to Sturtevant and the report findings.
Affordability worsened, but agents have an opportunity to 'step up and demonstrate their value'
Sturtevant said nationally, it will be a hard market in terms of affordability even as demand has slowed. The real estate market has trended more expensive for decades, but the current predicament of high home prices and high mortgage rates blossomed during the latter part of the pandemic.
A more challenging market, she said, will put greater demand on real estate professionals to provide local industry knowledge, guide buyers through rough waters and empower customers to make the right decision.
"This is a chance for these folks in our industry to step up and really demonstrate their value," Sturtevant said. "What we need to be thinking about moving forward is how to best represent the consumer in what is a very uncertain and, in some cases, anxious process."
Home prices saw an unprecedented rise
The price of housing rose faster over the past three years than it did during the real estate boom of 2005-2007.
The rise was influenced by the actions of the Federal Reserve, which have had a major effect on the real estate market since 2020. With the pandemic shutting down whole sectors of the economy, the Fed chopped federal funds rates, sending mortgage rates to a historic low of 2.65% in January 2021. Meanwhile, the cost of housing rose due to increasing demand. But cheaper mortgages, and an injection of stimulus funds, made housing feel more affordable.
As inflation heated up, however, the Fed reversed course and began to hike interest rates. Mortgage rates followed suit, hitting 7.49% last week — the highest cost of borrowing since 2000.
In the Bright MLS region, the average monthly payment for a home shot up by more than 90% to $2,950 in July 2023 from $1,550 in January 2021, according to the survey.
Remote work changed buyer behavior, at least for a while
The shift toward remote work temporarily relieved some pressure on housing demand in the country's major urban centers, but it caused prices in suburban and exurban areas to rise more quickly.
A significant percentage of workers continue to do their jobs remotely — more than 28% in June 2023 vs. 4.7% in 2019 — but the report noted that "it remains uncertain whether the pandemic-induced … housing preferences will be permanent or simply reflect an unprecedented, temporary situation."
Of course, not everyone had the option to work from home, and Bright's report found that a metro area's primary industry influenced changes in housing dynamics during the pandemic. Regions with a high proportion of white-collar workers may continue to see a different housing dynamic post-pandemic.
But with many employers now requiring workers to return to the office, commute time may once again be an important factor when buying a home.
What's next for the market?
Homebuyers will continue to feel the effects of pandemic-era policies and cultural shifts for some time. Sturtevant predicted 2023 will see the fewest home sales since 2010 as both the demand and the supply of homes dips.
Looking ahead, housing affordability will likely be an ongoing problem — home price growth continues to outpace wage growth, builders aren't building enough new homes to meet demand, and existing homeowners are hesitant to sell, keeping inventory low and driving prices up.
Sturtevant said the situation is forcing creative solutions. Homebuyers are pooling income, asking parents to help financially or are seeking out homes with rentable portions to make the mortgage.
And many are simply waiting to buy, hoping that prices or mortgage rates will fall. But Sturtevant said it's unlikely that we'll see 3% mortgage rates again, and she would be "surprised" to see the rate dip below 5%.
"I think it's going to be tough for the next three to five years," Sturtevant said.