In 2020, home prices climbed to record highs as upper-middle-class and wealthy families went on a buying spree thanks to the climbing stock market and remote work. Millions of wealthier families moved to larger homes with more space and better conditions for remote work. According to the National Association of Realtors (“NAR”), the net effect was a 9% overall increase in housing prices.
It Is a Seller’s Market
A combination of factors has resulted in a seller’s market. First, many wealthier families saved a significant amount of money in 2020 as most leisure activities were shut down, such as vacations and restaurants. Second, many larger corporations authorized long-term remote work, allowing these workers to move away from expensive neighborhoods in favor of larger homes with more space that is more conducive to remote work.
Third, the home construction industry could not keep up with demand during the pandemic, further constricting the market and increasing prices. In fact, 2020 ended with the lowest number of available homes ever. A study conducted by the NAR found that there were 23% fewer available homes for sale than in December 2019. Finally, home mortgage rates are at historic lows, resulting in a boom of home purchases and refinances as wealthier families take advantage of easy and cheap credit. The increase in prices was all over the country – including major metropolitan areas like Chicago.
Benefits for Sellers
The net effect of these factors is a boom for those seeking to sell their homes. According to ATTOM Data Solutions, home seller profits are at the highest levels since 2005 – the height of the previous housing bubble. They found that the typical gain on a sale was $68,843 – an increase of nearly $15,000 from the median gain in 2019 and over $20,000 more than the median gain in 2018. Moreover, distressed sales are at all-time lows representing 7.8% of the market in 2020.
Concerns for the Market
Experts caution that the market prices are not increasing at a healthy rate. Sellers are reaping major benefits, yet prices are increasing faster than wages. These market conditions are forcing buyers to compete for fewer homes and on tighter schedules. It is especially challenging for first-time homebuyers who make up about one-third of all home purchases.
