Why Home Prices Are Remaining Steady in This Market
The expectations in the housing market hardly match the realities on the ground. Even though many people cannot leave their homes to even view homes right now, the housing market is still considered to be holding up in the face of the COVID-19 pandemic. While some are forecasting a housing collapse on the horizon, there is not much short-term damage yet in the real estate market. Many are still planning on buying right now even when there is little to no visibility in the market. Here are four reasons why the real estate market seems to be holding up during the coronavirus.
There Is Pent-Up Demand
Remember a few short months ago, we were all writing articles about the fact that there were simply no homes to buy on the market. At the beginning of 2020, we were even advising you to buy a home outside of the key spring season because that would be the only way that you had a chance to find the home you wanted.
This extreme demand for home has only been lessened somewhat because of the economic turmoil that we are experiencing right now. There are still plenty of people who need a new home and that has not gone away. Now, these families and individuals are going out into the marketplace after being kept away from it for two months and will be looking for a home. The fact that demand has not been destroyed along with a limited supply means that prices can still remain higher right now.
This is perhaps the foremost reason holding home prices up these days. The Federal Reserve Bank has had to cut interest rates to historically low levels. Simply stated, there has never been a better time to get a mortgage than now because your monthly payment is less.
The rate on a 30-year fixed loan is just over 3% now. While banks are not paying you to give you mortgages, they may as well be right now. The interest rate on your home is barely higher than the rate of inflation. Once you factor in the fact that mortgage interest is tax-deductible, it is almost free for you to borrow money to buy a home.
Of course, you need to be able to qualify for a mortgage, and banks are tightening up on credit these days. However, the low interest rates mean that you can afford a phenomenal amount of home for your money, meaning that buyers can pay more for their homes.
While we may not have been able to leave our homes as much to notice, it is still spring out. This is the season to buy homes. Even though some moves and upgrades would need to be postponed, this is still the time every year where buyers venture out into the market because they need a home for whatever reason.
There are still buyers and this is the time of the year when the prices are the strongest. Prices drop when there are more sellers than buyers, and these months always have the most buyers to hold the market up prices. So long as people can get financing, they will be in the market bidding for homes in May. This will put a floor under the market.
Your Home Is Worth More
Unless someone is a first-time homebuyer, the amount of money that they can pay for a home depends in part on how much they can get from the sale of their old home. Since the housing market has risen so much since the lows of the Great Recession, it stands to reason that people are sitting on paper profits from their homes. Once they can sell these homes and lock in the gains, they can put the money to use towards their next home.
The fact that home prices are still steady means that this source of financing for your new home has not gone away. Since there is still a market for your home and your paper gains have not evaporated, you can look for another home with some confidence. Across the country, scores of buyers are making the same calculation, providing support for home prices in their area.
Of course, this may change if our economic problems become long-term, but for now, home prices have not fallen as expected. Instead, they are steady to slightly up this spring.
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