Happy Halloween! It certainly going to be a different Halloween this year with trick or treating limited by the social distancing.
Nothing has been normal about 2020. As I am recording this, Firefighters are trying to contain the Silverado Fire. Please be safe if you are in the vicinity.
Now comes the questions, with all these crazy things going on this year, why has the housing market stay sizzling hot? Why did the pricing went up 10% this year?
2020 real estate market has been dominated by 3 words: Election, COVID-19, and Interest rate, and these 3 words dictated the supply and demand on the market and ultimately controlled the price of homes.
Let’s start with the election…..every year during the presidential election, we always see a lower than a normal number of homes for sale. Why? Policy changes. A new regime usually brings on changes to policies on tax, international relationships, and economic outlooks. Whenever there is uncertainties, both numbers of buyers and sellers are reduced. People just don’t like to make major changes during a time of uncertainty.
Now, COVID-19, not only does it bring on uncertainty to the economic outlook and job securities. People’s health and safety are also impacted. This cause the number of home sellers an buyers entering the market drop.
Now comes the wild card…. The interest rate…. The interest rate just simply dropped too fast and too much since end of 2018. Owning a home all of a sudden become 20% cheaper. You must have heard my example of a borrower financing $500,000 in mortgage. Back in 2018, their monthly payment would be $2700. Now? It would be 2100. A 20% saving on the cost of owning a home. For those borrower that are comfortable paying $2700 a mont in mortgage, all of a sudden, instead of borrowing $500,000, they can borrow $620,000 – their purchase power just went up 20%. As a result, we have been seeing a flood of buyers taking advantage of the historic low interest rate.
The uncertain caused by COVID-19 and the Presidential election reduced the number of sellers on the market, and the historic low interests rate increased the number of buyers not he market. We now have an imbalance in the supply and demand and creating a seller’s market.
The savings created by the reduced interest rate improved the buyers purchase power so they can now afford more than normal. It directly impacted how much they are willing to pay and created the strong appreciation.
Knowing these, all of sudden, its not as shocking to see the housing market behaving the way it is.
That was THE most frequently asked question I got and hope this video answered that question for you as well.
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