Seven reasons why the real estate market still hasn’t recovered from the pandemic

The epidemic has swept through the U.S. real estate market like a tsunami. Sharp price increases and historically low inventories have been accompanied by a mass migration from expensive metropolitan areas. Four years later, the housing market has still not fully recovered. If you’re planning to invest in real estate or expand your existing portfolio in 2024, it’s worth keeping these six things in mind to get a clearer picture of today’s market trends.

A mixed bag of stocks

Although inventories in most parts of the country are still well below pre-pandemic levels, real estate agent network Cities in Texas and Colorado reported increases in inventories. In San Antonio, growth was a whopping 27.1%; Austin saw an impressive 18.1% growth, while Dallas and Denver each posted strong growth of 4.6%.

While some areas are seeing growth, much of the country continues to face a low inventory environment as a result of the pandemic.

More housing in Texas provides more jobs

The high demand for jobs in Texas, especially in major tech and industrial centers like Austin, Dallas and San Antonio, has attracted movers from both coasts seeking sunshine, a low cost of living, no state income taxes and stable employment opportunities. according to U.S. Census BureauFrom 2000 to 2022, more than 9 million people moved to Texas. Texas population growth in 2023 473,453. National production $2.4 trillion worth of new goods The services sector grows every year, making it the eighth largest economy in the world. Its gross domestic product growth rate in the third quarter of 2023 was 7.7%. So now is the perfect time to build more homes in Texas because of the influx of new residents who need a place to live despite higher interest rates.

But the influx of immigrants into Sunbelt regions like Texas was largely caused by the pandemic and the shift to remote work, which we’re still experiencing nearly four years later.

House prices continue to rise

In other states, however, the outlook is less positive and remains an integral part of the post-pandemic recovery. Here’s an overview of why prices continue to rise and what the investment prospects are:

• The pandemic has exacerbated a chronic shortage of inventory due to supply chain delays and labor shortages, meaning home prices are rising despite high interest rates. according to National Association of Realtors (NAR)In February, prices rose 5.7% compared with the same period last year.
• With more buyers than sellers, it seems unlikely that prices will plummet. So, if you want to invest – except for some Overheated epidemic hotspots Such as parts of the Midwest, Florida, and Austin, where home prices have fallen and you’re less likely to lose money on your home’s value.
• When interest rates fall and prices rise, you may gain equity. Two-thirds of existing mortgage Below 4%Unless there is a compelling reason for homeowners to move, as is the case in Texas, inventory is expected to remain tight and prices remain high.

Lack of competition means now is a good time to invest

High interest rates cause investors to disappear. The only ones left are those who have cash to spend or financing to be creative or innovative, and in reality, these are the minority. The lack of competition causes some sellers to become desperate, making them prime targets for investment.

According to NAR, existing home sales were down 3.3% From February 2023 to February 2024. Fannie Mae Home Buying Confidence Index A survey released in March 2024 showed that an overwhelming 79% of consumers believe now is not a good time to buy a home.

Pandemic turns America into a rent-a-nation

High interest rates, high home prices, and a lack of housing inventory make the current housing market a safe haven for potential landlords. “Housing is becoming a luxury item,” said Christopher Mayer, an economist at Columbia University. USA Today. Redfin chief economist Daryl Fairweather agreed in the same article: “This is the most unaffordable housing market in recent years.”

In many cities in the United States, Cheaper to rent than to buy. according to national association of realtorsthe median sales price of existing homes rose from about $350,000 in 2021 to a seasonal peak of just over $400,000 in 2023.

The pandemic has ushered in remote work across the country, allowing workers to avoid the idea of ​​homeownership and onerous mortgages by living in an affordable new city for a while before moving elsewhere.

Landlords see rents continue to rise

according to ZilloRental prices have increased by nearly 30% since the outbreak, with annual growth rates of 7% over the past four years. Although two-thirds of the growth occurred in 2021, the impact of high inflation and declining rental inventory caused rents to trend higher year over year in 47 of the 50 largest metro areas. The largest rent declines have been modest—less than 0.5% in some particularly high-growth cities.

This means potential landlords buying investment properties now can benefit from higher rents to match their high interest rates. However, landlords who buy cash or take on a mortgage will benefit the most.

Real estate market imbalance

“The surge in sales activity in February illustrates the strong demand in many markets. Buyers are looking for homes,” RE/MAX President Amy Lessinger said in the company’s announcement. ” Report. “As the market continues to rebalance, buyers and sellers alike appear to be adjusting their plans and making moves they may have had on hold for some time.”

The term “rebalancing” is only relative, with much of the country still understocked and not yet back to pre-pandemic levels. With a strong job market and a healthy economy, home sales depend on how many homes builders can build and whether high interest rates make them affordable for homeowners.

Another factor is Can builders afford it? Build houses. Lenders are nervous about financing homes that may not sell due to high interest rates and soaring construction costs. The result is that, despite clear demand, the supply of new homes lags behind.

final thoughts

Set the interest rate and take home the money – this is the wise advice of investment experts. We’re still looking at interest rates above 7%, a pandemic legacy of stimulus checks and wild inflation. When interest rates finally fall, expect a buying boom and more price increases, so if you can afford the hit to your cash flow, now is the time to buy.

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Notes on BiggerPockets: These are the opinions written by the author and do not necessarily represent the views of BiggerPockets.