Homebuyers should understand that the housing market is strongly dependent upon seasonal, current events. World events like the Covid pandemic have greatly affected the housing market. Even normal events like the change of seasons significantly impact home prices, supply, and demand.
Anosh Ahmed, an entrepreneur from Chicago, Illinois, explains how these external events affect the housing market and offers suggestions for the best times to buy and sell a home based on cyclical events.
The effect of the pandemic on the real estate market
Covid made a huge impact on the real estate markets in the United States and around the world. Commercial and residential real estate were both affected, but residential real estate saw the most upheaval.
In the spring of 2020, the housing market underwent a steep downturn. Simultaneously, the crisis in public health generated a severe economic toll in insecurity and job losses.
However, home sales rebounded during the summer months of 2020 and into 2021. This can be chalked up to the desire of professionals with newly mobile job situations to live outside the crowded city limits and retreat to the country, where they needed more space because their entire families were at home doing work and attending school online. This drove up prices in these areas, causing first-time homebuyers to be completely priced out of the market.
Prices did not go down when the volume of real estate sales increased in the summer of 2020 can be attributed to low supply and low mortgage rates. Demand has remained high, pushing home prices even higher in many markets.
Covid’s effects on mortgage payments
In the wake of Covid, any homeowners have struggled to make payments on their mortgages. As pandemic-related protections on foreclosures begin to expire, those who have not yet financially recovered from the pandemic may need to sell their homes at a loss. This could lead to a higher supply in the market and a greater number of distressed former homeowners looking for rentals in an already crowded market.
Cyclical variations in the housing market
To a lesser extent, seasonal variations in the real estate market happen each year. Home sales are highest in the spring and summer, as families have completed the school year and the weather is good for prospective moves.
June is the annual peak for home sales activity. The slowest months are between November and February when northern regions often deal with snow and bad weather.
Anosh Ahmed notes that prices tend to be highest in the summer when the highest demand is in force. For this reason, the best time to buy a home may be the midwinter season, when people who have had their homes on the market for an extended period of time are becoming antsy about selling. However, some homeowners take their properties off the market in the winter, so there may be an unnaturally low supply.
The housing market and the economy
Home sales are also prone to influence by general economic movements. When the economy is good, many parts of the housing market see healthy growth. When economic times are poor, these segments tend not to do well. Economic shifts affect the housing market as a whole, impacting two major segments in different ways.
Housing starts and home sales are the two major components of the housing market. Housing starts are the number of new residential units that start being built. In a robust economy, people are more likely to want new homes. In a weak economy, they are less likely to build a new home. Housing starts figures are important indicators of a healthy economy, affecting related markets like land sales, raw materials, mortgages, and employment figures.
Home sales themselves are tied directly to economic health. They tend to rise and fall along with the economic activity. As the economy slows, money is in a shorter supply. Money becomes harder to borrow, so fewer home buyers enter the market. This means that prices go down because the supply is higher than the demand.
Interest rates also influence the housing market. When the economy is depressed, as in the case of the Covid pandemic, the Federal Reserve Bank tends to lower interest rates to make borrowing more attractive. Lower interest rates may be conducive to a higher supply of money in the economy, leading to an uptick in home sales. This phenomenon has made a difference in the post-Covid housing market.
Understanding seasonality and cyclical movements
Anosh Ahmed has explained how the housing market responds to changes in the economy and the seasons. Tracking the housing market over a number of years will allow you to see these trends for yourself. When homebuyers have a solid understanding of how seasonality and cyclical movements affect home prices, they will be more likely to go in fully prepared to achieve the best possible price on their home sale or purchase.
Share
Contributors
