Why Aren't Home Prices Dropping?
Since the outbreak of COVID-19, more than 38 million Americans have lost their jobs. The Stay Home, Stay Healthy orders in our state, and varying orders around the nation, brought much of the economy to a standstill and initiated trillions in spending by the federal government in an effort to keep individuals and businesses afloat.
There were whispers of a mirrored 2008 situation and opportunistic investors were keeping an eye out for deals in the market. But those waiting for a lower price to come their way have found themselves disappointed.
Before the pandemic began, prices in King, Pierce, and Snohomish counties rose 6.9% year-over-year in March, topping national averages for the fourth consecutive month. And even throughout the pandemic, prices in our region have maintained or increased. In April, existing home sales fell by nearly 18% but saw an average price increase of 7.4% compared to a year ago. So what's the difference? For those who remember 2008, it’s a logical question to ask.
There's a few factors at play. In 2008, many of us experienced financial hardships, lost homes, and were out of work during the Great Recession–the recession that started with a housing and mortgage crisis. Today, we face a very different challenge: an external health crisis that has caused a pause in much of the economy and a major shutdown of many parts of the country.
2008 saw a fair amount of cash-out refinancing where people would borrow the equity out of their home to finance whatever they'd like. Since then, many have learned to exercise caution and today 53.8% of homes across the country have at least 50% equity. This makes homeowners much less likely to walk away.
Over the last five years, our booming economy and low supply of available housing drove a market with high buyer demand. After the outbreak, many sadly lost their jobs, a portion of their income, or simply decided to wait on the sidelines until they felt comfortable to shop around again. Normally, this would lessen demand and put downward pressure on prices, but because we are in the midst of a pandemic, many sellers decided to pull out of the market for many of the same reasons as buyers. So as buyer demand dropped, available inventory did as well-essentially maintaining the post-pandemic supply and demand balance.
On top of that, interest rates are still incredibly low giving many buyers the extra boost of confidence they need to secure a new mortgage. In attempt to forecast what's to come, Zillow looked at international housing markets to see how they've fared throughout and after the pandemic. In Asia, they found that while activity dropped, home prices didn't alter much.
That said, the situation is fluid and we will continue to monitor the local and national market as this unfolds. If you're curious about specific data in your neighborhood, please reach out with any questions.