Home sales continued to surge in the US with a low housing supply amid the pandemic in 2020. A report from the National Association of Realtors (NAR) recently reveals that sales of existing homes in October 2020 skyrocketed by 4.3% past expectations compared with September 2020, and 26.6% from October 2019, to a seasoned adjusted annualized rate of 6.85 million units. The annual increase was described as “a spectacular gain” by Lawrence Yun, NAR’s chief economist, who also expects the rate to incline by 10% to 6 million in 2021. The October annualized sales rate also represents the highest since February 2006, with the previous rate highest rate being at 7.1 million units, which occurred in 2005.
“It’s quite amazing. Even if the home sales were to go down to 6 million, I would be happy,” said Yun. “The surge in sales in recent months has now offset the spring market losses. With news that a COVID-19 vaccine will soon be available, and with mortgage rates projected to hover around 3% in 2021, I expect the market’s growth to continue into 2021.”
What’s behind the surge in home sales?
The question of the cause of the surge in home sales is a legitimate question among realtors in the US housing market. Besides the historically low mortgage rates, what else could have been driving the demand for homes in 2020?
To explain this, NPR.com featured an article in August 2020 about a lady known as Caroline Wells and her husband from San Antonio. Living with two kids in a home with no backyard on a busy street and both of them working remotely from home, they spent all the time with their kids indoors.
“Probably the worst moment was when I was actually on a focus group that my company put on to hear the needs of parents. The Zoom call kept freezing because everyone in the house was using the Wi-Fi at the same time— including her 6-year-old son, who was hiding out in a fort made of blankets and chairs in the living room,” Wells narrates.
“I had to crawl into the fort to get him off the Internet, had to end up finishing the Zoom call on my cellphone in the closet with the door locked on the floor,” she continues. “I was like, I can’t even get through a focus group about how hard it is to work from home because it’s so hard to work from home!” That was the moment she decided she couldn’t take this anymore.
Wells’ story is what other millions of Americans were experiencing during the pandemic in 2020. Such stories contributed to a significant part of the reason for the surging home sales in the US in 2020— the need for more space.
Low mortgage rates
Historically low mortgage rates recorded in 2020 were certainly a driving force for the rise in home sales in the US. “No matter what you’re looking for, this is a great time to buy since the current low-interest rates can stretch your spending power,” said Bill Banfield, executive vice president of capital markets at Quicken Loans. “With interest rates in the two’s available, a buyer can afford much more home than they could have just a few years ago.”
As of December 2020, the mortgage rates were at around 2.7%. The historically low mortgage rates served so much relief to homebuyers since the recent surging home prices no longer had the power to increase housing affordability as they once did. However, the low mortgage rates may not be there for long.
“Mortgage rates could tick up in the months ahead and test the strength of this seemingly unstoppable housing market,” said Danielle Hale, chief economist at realtor.com. “Additionally, rising coronavirus cases could also dampen sales. This spring we saw both buyers and sellers hit ‘pause’ on their plans in areas where coronavirus spread was prevalent. While buyers were relatively quick to resume, sellers have come back more slowly.”
The current tight housing inventory in the US market is being met with an insatiable demand from eager buyers. This, in turn, has led to the stiff competition that is driving faster sales at higher prices. When Caroline Well decided she couldn’t take it anymore, they started shopping for a house in the suburbs outside San Antonio. On the first home they liked, they offered more than the asking price and still got outbid. There were a lot of other bidders who offered more for the unit to stand out and buy the home.
Conclusively, the situation is expected to remain this way through to 2021. If you’re planning to buy a home in 2021, brace yourself for a not-so-easy encounter as the housing inventory is expected to remain low, and the demand is expected to keep rising.