Counter to the performance of the housing market in the last recession, the housing market in 2020 has not mirrored these same downturns. In the second quarter of this year, housing prices in middle and high-income countries have increased: rising at an annual rate of 5%. Domestically, prices in medium-sized houses have increased more than in any time prior to the ‘07-’09 recession. These increases can be explained by monetary and fiscal policy, as well as buyers’ consumption preferences. Internationally, central banks have cut policy rates by two percent this year and Americans can take out a 30-year fixed mortgage at an annual rate almost a percentage lower than at the beginning of the year. Historically, decreasing interest rates, as experienced now, have directly correlated to increased housing prices. However, this increased tendency to lend has not affected everyone equally, as those with lower incomes are not receiving large loans. Fiscally, governments have instituted a host of bailout bills, intending to maintain the income of average consumers. In G7 countries, household disposable income was roughly $100 billion higher than before Covid-19, despite the rise in unemployment. Various countries have instituted policies to preserve incomes, such as Netherlands’ banning of foreclosures and Japanese banks’ deferral of principal repayments on mortgages. Finally, buyers’ preferences have appeared to lead to an increased desire to increase the size of their home. While housing markets in big American cities are not doing well, reports do not indicate Americans are fleeing cities to move to suburban areas. In fact, housing prices in urban and suburban areas have increased at the same rate. People are likely looking for larger houses in areas they already live in, rather than seeing to purchase larger houses elsewhere — possibly due to the fact that homes are becoming both residential and office spaces.
It will be interesting to see how housing prices change as we get further into the pandemic. If fiscal stimulus ceases, it is possible that consumers will be less willing to purchase houses, as they will lose disposable income. Additionally, the expected market volatility brought by the upcoming election will also likely create uncertainty regarding the housing market. If the pandemic worsens an increased demand for housing may not match the limited supply of construction. However, as the author declares: “It may take more than the deepest downturn since the Depression to shake the housing market’s foundations.”
2 comments:
It is very interesting to see the resilience of the housing market despite the pandemic we are still currently in. These trends reflect low-interest rates as a result, but I think it is also fair to assess that in the long run demand will continue to increase in the market as prices continue to drop. At least, these are the predictions I am making. It is very uncertain, but only the future will tell.
I don't think that consumers will be any less willing to purchase homes. Consumers are taking advantage of the low interest rates to get the homes they desire whether that be switching from renting or moving to a larger home. People have not seemed phased by this pandemic in the housing market and I definitely agree that it would take something very serious to hurt it by this point.
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