Asheville – Buncombe County Tax Collector Keith Miller isn’t the only analyst describing the skyrocketing housing market as “crazy.” Despite COVID, the housing market across the country is on fire, and, as Miller mentioned, this trend started well before the pandemic. Fortunately, while some trends mirror precursors to the last housing bubble, key triggers are not as severe.
Giving listing prices and turnover times a boost are the almost-zero interest rates and a very tight housing market. Scarcity in housing stock, which is leading to record increases in sales prices, is being squeezed by both supply and demand. The latter, pre-pandemic, is attributed mostly to Millennials reaching their nesting years. In addition, technological advancements have made it possible to work from home, an option many were finding desirable before COVID forced the issue.
Housing Demand Skyrocketing
From the supply side, while construction was one of the stronger industries during the shutdowns, new housing is not being built fast enough for the demand. Reasons cited since April include the 20 percent tariff on Canadian lumber, which can add $16,000 to the cost of the average home. Chinese tariffs and slow supply chains are other causes cited.
Michael Tanner at the CATO Institute, however, says the COVID-induced impacts on the housing market pale in comparison to the manmade drivers that he’s been warning for decades have only continued to grow. Regulations lumped under the category “zoning” now generally increase the cost of rentals by 10 to 30 percent, and, in some places, increase the cost of housing 50 percent.
But first, a recurring theme in housing market analyses this year is equity, not because it is politically-correct to view everything through an “equity lens” so much as it stands out like a sore thumb. Low-income households tend to be supported by essential workers whose jobs expose them at higher rates to COVID.
Essential workers also tend to rent. Consequently, economists Edward Glaeser, Joseph Gyourko, and Raven Saks point out, they do not have as much say at housing prices as property owners. That is, the wealthy are not only more inclined to organize “Not In My Backyard” reactions to dictate where new construction can go and how it should be designed, they are also more able to afford the costs of living in construction adhering to the new regulations.
The economists reported nonstructural costs, like design and permitting, which accounted for about 10 percent of new construction costs before 1970, now comprised 30 to 40 percent of housing costs in some high-priced markets. And, in the decades while zoning has become more popular, permitting has declined 37 percent. As an aside, analyst David R. Francis adds, “Bribery or other methods for persuading officials to permit developments have probably become less effective than in the 1960s, though there is little evidence either supporting or refuting this thesis.”
To help citizens through the crisis, all levels of government have instituted moratoriums on evictions. According to a repository of statistics made available by Norada Real Estate Investments, in September, delinquent mortgage payments numbered 3.4 million, which was twice the number for January, and about 1.2 percent of housing loans were at least 150 days past due. For renters the same month, 8.5 percent or 2.82 million skipped, delayed, or partially-paid.
Foreclosures, of course, we’re down to unprecedented levels. The federal government has said it will, through Fannie Mae and Freddie Mac, make available a total of $2.8 billion to protect over 28 million homeowners from foreclosure. Then, with mixed reception, among other programmatic changes, the Biden administration is expected to expand downpayment assistance and tax credit programs to help people of color enjoy the American dream.
To pay for all this, the federal government, with a national debt over $27.5 trillion and counting, is expected to continue buying bonds while the Fed keeps interest rates low, possibly for years. While reasonable economists projected recovery from the 2008 recession would be ending about now; pundits striving to improve consumer confidence spoke of a V-shaped pandemic recovery, which they now admit is at-best, but at least plausibly, J-shaped, or if there’s a second shutdown, will W-shaped. The 2020 shutdowns are estimated to have caused a 6.5 percent contraction in the nation’s economy.
At COVID’s nationwide rock-bottom, jobs lost totaled 22 million, but that number has climbed back to 13 million. During the worst of the pandemic, there were many weeks during which over 1 million persons applied for unemployment, which is four times the normal volume. At 10.2 percent in July, pandemic unemployment exceeded the nadir of the Great Recession, 10 percent in October 2009.
Things Are Looking Up
For the moment, however, things are recovering. Real GDP, which is GDP adjusted for inflation, has rebounded to former levels following a 31.4 percent second-quarter drop. Spending has increased in some sectors, the highest-growth services being in healthcare, and the fastest-growing goods being automobiles and auto parts. Government spending has decreased overall.
Somewhat surprisingly, national averages for personal household budgets fared well through the second quarter. Total personal income, not adjusted for inflation, decreased $540.6 billion in the third quarter after it had gotten off to a good start increasing $1.45 trillion in the first. Personal savings, which grossed $4.71 trillion in the second quarter, were already falling but fell further to $2.78 trillion in the third.
As recovery proceeds during the current technological shift, more resources will have to be diverted to things like broadband, continued COVID retrofits, and addressing “social determinants of health” that COVID has exacerbated. And, as Tanner expects, the rich, famous, and connected will find their way to the front of the line.