Kovar Capital: Where is the housing market headed?

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Hi Taylor: I’ve been reading about how there hasn’t really been a dip in homebuying even with COVID and the economic struggles. Any idea where the market’s headed? - Nina
Hey Nina: Real estate, like everything else, has been pretty interesting in 2020. When the economy first shut down in March, home sales tanked. Since then, people have been buying at a pace close to what we saw in 2006 before the bubble burst. It’s hard to offer a long-term projection, but I’ve got some thoughts about what we’re seeing right now.
Interest rates are too tempting. Rates have hovered around zero for more than six months, and the Fed has indicated they should stay low for years to come. This is having the desired effect, with lots of people rushing to the bank to get great mortgage rates and become homeowners. Sales are up over 10% from a year ago and houses are staying on the market for barely over three weeks on average. Things are still volatile and I can’t say how long rates will keep buyers motivated, but it’s definitely working at present.
Inventory is low. A big part of the reason houses are on the market so briefly is that buyers don’t have a whole lot of options. Especially in cities, and more and more frequently in suburbs, the number of houses on the market continues to be sparse. And while sales are still high, the inventory problem is driving the price up and making it difficult for a lot of middle-class buyers. This has been a problem for a while, and it certainly won’t get better as lumber prices have shot up due to all the fires on the West Coast. Building had already slowed because of pandemic protocols, so anyone who sees sales numbers and thinks that the overall market is thriving is ignoring a large, looming issue.
Wealth disparity. As I mentioned earlier, we’ve seen that the economic impact of COVID-19 hit certain demographics harder than others. A lot of people in healthcare, education, and hospitality are still out of work, likely taking them out of the pool of perspective homebuyers. It’s always the case that the wealthier professionals will be quicker to buy a second house than someone with a smaller salary, but we’re definitely seeing that reality amplified. Moguls from all industries have access to the same low interest rates as those who are struggling, so the homebuying market and the price escalation is fairly skewed right now.
These are the factors that I’ve been tracking over the last few months. It’s nice to see the market doing well, but always good to keep an eye out for what might make the other shoe drop. Thanks for reaching out!
Disclosure: Information presented is for educational purposes only and is not an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. To submit a question to be answered in this column, please send it via email to Question@GoFarWithKovar.com, or via USPS to Taylor Kovar, 415 S 1st St, Suite 300, Lufkin, TX 75901.

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