Real Estate Market on the Rise! What is Happening, and How Long Can it Last?

Toy houses behind stacks of coins

After months of financial uncertainty and turbulent performances, the economy appears to be on the mend. Real estate, one of the most important industries in the country, and a strong indicator of overall strength, has struggled but stayed strong.

The real estate market, as a whole, is now showing positive signs. What’s happening across the country, and can this positive trend last?

What is the Current Status of the Real Estate Market?

To best understand the market, it helps to focus on three important factors: total units sold, new construction being built, and the average home price.

Total Sales:

Of all the various stats and figures we can consult, few figures will tell us as much about the current state of the real estate market as total sales. This stat is simple: how many properties are being sold?

According to the National Association of Realtors, existing home sales were on an “upward trajectory in July,” rising 24.7% from June. This marks two consecutive months of high increases, as the previous month saw an increase of almost 21%. It appears that these increases are being experienced all over the country, as all four regions of the nation had sales growth over 10%. (The Northeast, despite monthly gains, was the only region to show a year-to-year decline.) This tells us that the positive trend is spread across the entire country, not just concentrated in one state or area.

New Construction:

New construction is an important part of the growing real estate industry.

While existing homes are the backbone of the real estate industry, construction of new homes can also be a major indicator of the strength and stability of the real estate market. In this aspect, we have another positive indicator.

As we outlined an a late August article, new construction is on the rise, with new home sales jumping 16% in May of 2020. This increase was caused by a variety of factors, including a general trend towards the suburbs, as well as an inventory of existing homes that was unable to meet demand.

Home Prices:

Another important stat is home prices. Generally speaking, if home prices are high, that means the real estate market is seeing lots of activity. People are buying homes, and because there are so many buyers, sellers can expect a higher price among competitors. Zillow, which provides a variety of real estate information, says that the median home value has gone up 4.1% over the past year.

Their data shows that prices had been going up until March of 2020, when the coronavirus caused the economic slowdown. At that point, prices fell slightly, dipping from a median of $248,000 in March to a current low of $243,000. So while prices are still on the decline, it appears that the trend has leveled off.

Also, compared to August of 2019, home prices a year later were still higher. (In times like these, we have to remember the positive signs, which are often buried in negativity.) With more sales and more construction, you can reasonably expect home prices to continue to increase.

How Long Will the Positivity Last?

While people in the real estate and mortgage industry need to be careful, and take all gains with steady caution, there are plenty of reasons to be confident. Sales are high, demand appears to be rising, and new construction is bringing more opportunities for buyers.

But how long could it last? Of course, making a forecast such as this is next to impossible, but there are a few predictions we can make.

First of all, so much depends on the coronavirus. If we see yet another surge of COVID-19, a few factors will likely contribute to a decline in the market. As we saw in early spring, when the virus creates a scare, people halt their real estate activity. Sellers, not wanting to let the virus come into their homes, will pull inventory from the market. Buyers, not wanting to contract or spread the virus, will wait on their purchases. Basically, if the coronavirus resurges, we can expect another slowdown in real estate activity.

But what if the virus doesn’t come surging back? What if the virus’ impact fades, either through a vaccine or a treatment breakthrough? In that case, it seems like the existing factors, many of which were in effect before the spring, could propel the real estate market (and the economy as a whole) to new heights.

Many of the ingredients that created the strong market before the start of 2020 are still in place. Mortgage rates, for example, are still low, which means purchasing a home with a mortgage (which is the case for most buyers) becomes more affordable. With low interest, buyers can either purchase more home, or get a better price on their loan. Millennial demand for homes is also high, and this will likely remain the case.

And new factors may propel the real estate market even higher.

Suburban houses
People moving from inner cities to the suburbs could fuel the real estate market for years to come.

One trend that will likely continue is the move from cities to suburbs. Because of various circumstances (some say the coronavirus, some say civil unrest, some say aging millennials, others say all of them and more) people seem to be moving from inner-city locations to the suburbs. An article from The Oregonian profiles the general move outward, claiming that while the coronavirus is likely the biggest factor, “high prices and little availability,” as well as civil unrest, have played a part in driving people from downtown lofts to suburban sanctuaries. “And city dwellers,” the article added, “who can’t see a future in which they will start going to indoor entertainment venues question the payoff of an urban lifestyle.”

While a real estate market graph might be expected to take a V shape, with a sharp decline followed by a sharp rise, it seems reasonable to assume we may be in for a W, indicating a drop, rise, another drop, and another rise.

Regardless of the virus, it seems likely that home prices will either rise or stay steady. There has been a relatively low inventory, even before 2020, while demand has remained high. This has driven up home prices in many areas, and until construction can catch up, it seems that inventory will remain low, driving prices upward even if it’s only a steady rise.

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