Homebuyers Brace for
Pain in a Post-Pandemic Market
Record-low housing inventories, rising demand and higher
prices will strengthen the argument for renting next year.
By Conor Sen
December 1, 2020, 8:30 AM EST
As coronavirus vaccines approach a widespread rollout, the
next six months of economic activity are going to be dominated by the impact of
society's growing immunity — and easing fears. Combined with historically low
levels of housing inventory, that could make the traditional spring homebuying
season a particularly frustrating one for buyers.
Recent housing data show how tight inventories already are. The supply of existing homes fell to 2.5
months in October, a record low for a period when normal inventory levels are
four to five months of supply. For new homes, the months’ supply of
inventory fell to 3.3 in October, also a record low.
Real-time inventory data from Altos Research show that the supply of homes on the market
continues to be down more than 40% year-over-year. This is one reason
sentiment from homebuilders is at record-high levels and why home-price growth
is accelerating.
Now layer on the timing for potential vaccine rollouts.
Goldman Sachs forecasts that half of
Americans will be vaccinated by May. When you consider that some people
have acquired natural immunity through infection — perhaps as many as 30% —
it's possible that the U.S. could be approaching
herd immunity by late spring. At the least, we should see far less spread
of the virus than we've seen since the onset of the pandemic.
That portends a V-shaped recovery by the middle of next year
in areas of the economy hardest-hit by the pandemic. While questions will
remain about business travel and going into the office — activities that may
see permanent shifts from the pandemic — there will be a rise in employment and
demand for travel and leisure industries.
That should have positive second-order effects even for
workers and consumers who haven't been directly affected by the pandemic.
Workers who didn't lose income may have increased their savings for fear they
might yet get laid off. The abatement of that risk should give them more
confidence to spend.
That could mean a new cohort of U.S. households looking to
buy homes in the spring. While the pandemic accelerated the purchase plans of
many renters, there was also the view among some people that a pandemic is a
poor time to make a big financial decision, such as buying a house. It's these
households that may decide that early 2021 is their time to buy, only to run
into the challenges of low inventories and high prices.
There might be some offsetting factors on the supply side. Some homeowners who decided not to list
their homes for sale during the pandemic may now choose to do so. And an end to
foreclosure moratoriums, which contributed to the inventory shortage by
holding homes off the market in 2020, could increase supply in 2021.
Post-pandemic market signals might also lead households to
make different decisions than they would have a year ago. Let's say home prices are 12% higher in the second quarter of 2021 than
they were at the end of 2019. Meanwhile, apartment rents have fallen in
many cities, particularly high-cost cities like New York and San Francisco.
It's possible that the rent-versus-own math may have shifted
as much as 30% toward renting rather than buying by May. For those so inclined,
it might be a better financial move to rent for a while at a bargain price
rather than getting into bidding wars for suburban homes selling at elevated
prices. This sort of dynamic could help rebalance the housing market and give
hard-hit cities a lift as they begin their post-pandemic recoveries.
But the base case next year should be a historically strong
first half for the housing market, fueled by crisis-level inventories, low
interest rates, a post-vaccine economic boom and a demographic tailwind from
family-forming millennial households. This will be welcome news for the economy
— unless you're looking to buy.
This column does not necessarily reflect the opinion of the
editorial board or Bloomberg LP and its owners.
To contact the author of this story:
Conor Sen at csen9@bloomberg.net
To contact the editor responsible for this story:
Susan Warren at susanwarren@bloomberg.net
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