What a Weird Housing Market This Is
If you're trying to buy a home, the housing market in your community may be crazy tight. This is a weird housing market right now, and with the pandemic getting better, many buyers are clamoring for a very small supply of homes for sale. In even more bizarre news, some cities' rent prices are sky-rocketing while others are dropping – in some major cities, decreasing by the double-digits.
In any other year, the recession caused by the pandemic would have devastated the housing market, as well. But during 2020, there was an unexpected real estate boom, specifically higher-end home purchases in suburbs and small towns. Single-family homes have always been in shorter supply since the 2008-2009 housing crash, and new building has been slower. Short supply isn't the only factor in higher demand; very low interest rates in 2020 also spurred a flurry of home purchases. Finally, as more Millennials enter their 30s, they're in a better position to buy a house.
K-Shaped Pandemic Economy
While each factor contributes to the demand for homes, it doesn't quite explain what experts call a "K-Shaped Economy." There's a significant divergence between rent prices and homes. Hourly workers in restaurants, hospitality, and retail took a significant hit on their finances during lockdown. In contrast, white-collar workers in the finance, tech, and other industries that didn't rely on in-person service could work from home and ride out restrictions.
Pandemic cabin fever in cramped spaces may have accelerated the drive to purchase a home or upgrade to a larger one. People in a position to buy more expensive single-family homes compete for a smaller number of suburban homes with extra rooms and other amenities.
Demand for apartments or townhouses close to city centers or entertainment districts dropped significantly. This led to a decrease in rental prices and even fewer people to rent these units. Younger professionals may have opted to stay with family during the pandemic instead of getting their own rental place, further depressing the rental demand.
This Strange Moment In the US Housing Market
While the K-shaped housing market has highlighted some of the fundamental economic differences between the white-collar and the service worker class, there may be a silver lining. The decreased rental prices for apartments, condos and townhomes in the city centers may be luring younger or middle-class residents back – people who had been pushed to the outskirts of a city. With this "reverse migration" may come a middle class with more disposable income, as they aren't having to spring for a long commute and may be able to take advantage of walkability and public transportation available in downtown areas.
Rent prices may be starting to creep up in some of the places hit the hardest. And it's not just younger people who may be moving into these prime locations. Some city people who moved into the suburbs may be missing the vibrancy of downtown and are seeking to move back, taking advantage of lower rent prices.
While the weirdness in the housing market isn't necessarily a tale of generation vs. generation or class vs. class, it has shined a light on the challenges that Millennials have faced with "typical adult milestones" such as buying a house in the suburbs. However, it's possible Generation Z who may benefit the most, able to live in great city locations at lower prices.
