What’s Causing Home Prices To Skyrocket – Low Rates Or Wanting More Space?

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Dwelling costs are skyrocketing in most U.S. markets regardless of COVID- 19, a recession and an incredibly excessive unemployment price.
Many analysts are speculating that a part of the growth in home costs is attributable to COVID-19 – that some individuals are involved about COVID-19 contagion and don’t wish to stay any extra in tight, multi-family buildings so that they’re shopping for single-family houses within the suburbs. One other concept alongside the identical strains is that as a result of working from residence has skyrocketed, some folks need extra space so that they’re shopping for bigger single-family houses, particularly if their youngsters are residence all day, too. This appears to be taking place in metro New York Metropolis however what about locations that weren’t hit as onerous by COVID-19 and aren’t as dense as New York Metropolis?
Definitely the decrease mortgage rates of interest are an enormous half of the present residence value growth. The 30-year fixed-rate mortgage price the primary week of January 2020 was three.7% however now it’s solely 2.9%, in accordance with Freddie Mac. The decrease charges make your month-to-month mortgage fee loads cheaper so extra individuals are shopping for houses and in addition they’re shopping for pricier houses.
The month-to-month principal and curiosity fee on a $300,000 mortgage would fall by $132 per 30 days when charges fall from three.7% to 2.9%. Or put one other means, for a similar month-to-month principal and curiosity mortgage fee on a $300,000 mortgage at three.7%, you can borrow $332,000 at as we speak’s 2.9%. A number of residence consumers are okay with paying a bit extra for a home now as a result of their month-to-month mortgage fee remains to be lower than it might have been final January.

The query is how a lot of the present wild housing market is attributable to the decrease charges and the way a lot is attributable to COVID-19 altering the form of houses folks need. Right here’s a fast take a look at one market the place I’ve entry to detailed housing information, Phoenix, Arizona.
Opposite to the COVID-is-changing-consumer-demand concept, the variety of condos offered by way of the metro Phoenix MLS in August was up 6% in 2020 in comparison with 2019, whereas the variety of single-family houses offered was down 2%.

Taking a look at costs as an alternative of gross sales, the median value of Phoenix condos offered in August 202o was up a whopping 17% in comparison with August 2019. For single-family homes, the median value was additionally up a 17%.
It’s just one metropolis but it surely doesn’t appear like demand is shifting away from residing in increased density condos and towards single-family houses.
The primary driver of the present actual property market mania is the decrease mortgage rates of interest which have been in flip attributable to the Federal Reserve’s response to COVID-19. In keeping with this fast evaluation, COVID-19 didn’t trigger Phoenix residence consumers to shift away from apartment purchases.
What are you seeing in your space? If apartment gross sales are comparatively weaker than single-family residence gross sales, that might counsel COVID-19 is altering client demand preferences.

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