July 12, 2021
By now, you’ve heard the housing market horror stories.
Chances are you know someone who thought they’d found the perfect home at the perfect price, only to be wildly outbid at the last minute. Maybe you’ve been that someone.
So what’s going on? How did the housing market go from a pandemic-fueled lockdown to a frenzy?
It’s simple—the tight housing market has a lot to do with supply and demand.
It started in 2020 during the darkest days of the COVID-19 pandemic. To combat the economic crisis sparked by shutdowns, interest rates plummeted to an all-time low. At the same time, workers in cities started flocking to states with more reasonable costs of living. After all, their work situation was almost entirely remote—why shell out $2,000 per month for a broom closet in Manhattan when you could pay the same for a 4 bedroom, 2 bathroom house in Iowa?
Millennials were especially driven by the favorable market conditions. They were eager to buy houses and establish roots.
That’s the demand side. What about the supply?
Even before 2020, there was a drastic housing shortage in the United States to the tune of 2.5 million units.¹ Toss in shutdowns of construction companies and lumber mills, and you had a recipe for an even worse shortage. That equates to a sellers market—those selling can often expect massive payouts while buyers may have to face bidding wars and skyrocketing prices.
So what should you do?
The answer depends on the individual. Those looking to buy should be prepared for a lengthy (and expensive) process, and buying might not make sense unless you’re planning on staying in your new home for at least five years or more.
There’s no telling how long the market will continue its hot streak. Just make sure you have your finances in order and a clear strategy before you commit to making a massive purchase like a home in this climate.
¹ “The U.S. Faces A Housing Shortage. Will 2021 Be A Turning Point?” Natalie Campisi, Forbes, Jan 4, 2021, https://www.forbes.com/advisor/mortgages/new-home-construction-forecast/