Posted in: Op-edHousing Market
Published:
May 23, 2020 4:00 PM UTC

3 Deceptive Reasons the U.S. Housing Market Suddenly Looks Red-Hot

The housing market looks as hot as ever. But peer beneath the surface, and the sector may not be as healthy as it initially appears.
  • The U.S. housing market is unexpectedly vibrant, given the economic fallout of the coronavirus.
  • Redfin data shows bidding wars are surprisingly commonplace.
  • Here are the real reasons why real estate looks so hot.

Real estate brokerage Redfin published some astonishing housing market data this week. Not only has the coronavirus pandemic failed to dent homebuyer demand, but bidding wars have become startlingly commonplace.

The housing market looks as hot as ever. But peer beneath the surface, and the sector may not be as healthy as it initially appears.

Covid-19 Fails to Dent the U.S. Housing Market’s Annual Spring Bloom

Everyone wants to buy a house in the spring. The weather’s nice, the gardens are blooming, and sometimes there are babies on the way.

This year, with nearly 40 million Americans unemployed and a nationwide lockdown, it seemed spring wouldn’t come for the sellers.

But that’s not what happened at all.

Bidding wars are surprisingly common in key U.S. housing markets. | Source: Redfin

Not even the most deadly virus can change the fact that single-family homes look nicer than ever this time of year.

Intrepid buyers have been out there touring – often virtually – and getting into major bidding wars, according to Redfin data.

Some metro regions are seeing as many as 60% of homes flooded with competing offers that net sellers a windfall.

But the real state of the housing market might not be quite as bright as this data suggests. Here are three big reasons you should take it with a pinch of salt.

1. Supply Is Non-Existent

The spike in bidding wars may have less to do with surging demand than shrinking supply.

There aren’t many homes on the market, and the supply is slowing. Some sellers are fearful it’s a bad time to sell, while others don’t want strangers traipsing through their hallways.

For many homeowners, this just isn’t the time to make a move with all the uncertainty in the world. The financial establishment has done a great job of convincing people that 2021 will be brighter (after the elusive V-shaped recovery), so why sell now?

President Trump has repeatedly said he expects pent-up demand to explode when the coronavirus pandemic passes.

Fear of missing out on this resurgence is ensuring that sellers are “safer at home” (as we say in L.A. county.)

Donald Trump is expecting a burst of economic activity when the U.S. economy fully reopens. | Source: Donald Trump via Twitter

2. White-Collar Privilege

One of the worst things about this pandemic is the way it has disproportionately impacted the lowest-income Americans.

While the coronavirus has destroyed the livelihood of some sectors, others haven’t suffered too much damage (at least not yet).

Most layoffs have come in the services sector. Although this is the engine that powers the U.S. economy, it’s built on low-paying jobs.

 

A staggering 40% of households making less than $40,000 a year suffered at least one job loss in March, a much greater percentage than in higher-income tiers.

This means that the households most impacted by coronavirus are the ones that are also the least likely to be in the housing market game anyway.

The unaffected white-collar workers have felt little economic impact from COVID-19 (again, so far), and so they’re not letting a little pandemic get in the way of their home search.

Interest in buying a home is on the rise. | Source: Google Trends

This feeling of economic security, at a time of widespread hardship, has them all rushing out for a bargain at the same time.

The headlines show data that is worse than in 2008, and they all expect a raging deal. This situation seems to be creating more prospective buyers, as Google search volume for “how to buy a house” is at 12-month highs.

3. Government Stimulus Kicks the Economic Reckoning Down the Road

Perhaps the most worrying aspect of the current heat in the U.S. housing market is that it’s being held up by all the temporary government stimulus that is sloshing around.

Mortgage, rent, and student loan payments are being put on hiatus at alarming rates as the government tries to keep a lid on the economic meltdown.

To put it simply, the government is desperate to prevent consumers from feeling how dire the economic situation really is. Because their natural response – to cut spending – would create even more economic headwinds.

Unfortunately, this holiday will come to an end at some point.

The storm hasn’t hit yet, but with Senator Mitch McConnell already doing his best to end the additional unemployment benefits, this government support is eventually going to disappear.

Only then will we learn how strong the economy – and by extension, the housing market – really is.

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com.

This article was edited by Josiah Wilmoth.

Last modified: May 21, 2020 3:00 PM UTC

Francois Aure @bullishtulips

Financial speculator & author living in the hills in Los Angeles. J.D. but very much not a lawyer. Favorite trading books are anything written by Jack Schwager. Email: bullishtulips@gmail.com,

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