- A report by Bank of America laid out five factors that have allowed the US housing market to bounce back so quickly.
- The factors include the market’s strength prior to the outbreak as well as forbearance programs.
- Unlike the recession of 2008, when a housing meltdown was the cause of the Great Recession, BofA predicts housing will be one of the main sectors that leads the country out of its downturn.
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Unlike the recession of 2008 and 2009, housing has not been the driving factor of the current economic downturn.
In fact, a recent report by Bank of America (BofA) sees housing leading the country out of its downturn, and spells out five major reasons why the market has rebounded so quickly.
The housing market has been showing steps toward a recovery since May, when buyer demand recovered. Price growth got back to pre-pandemic levels in June, and soon after, the pace of sales caught up.
But how long can a booming housing market last? Read on for the main reasons BofA sees a bright future.
1. The recession
According to Bank of America, the current recession is having a disproportionate impact on different types of household, which has been a catalyst for the bounceback.
The bank found that 55% of lower-income households (those earning less than $35,000 a year) have lost employment income as a result of the pandemic. This cohort is less likely to be homeowners — the median household income of recent homebuyers, according to the report, is $93,000. Therefore, the housing market hasn’t been impacted by the brunt of the pain falling on the poorest Americans.
2. Interest rates
Interest rates have dropped to record lows since March.
In fact, in mid-July, the average 30-year fixed mortgage rate fell to 2.98%, the lowest-ever recorded percentage by Freddie Mac, dating back to 1971.
BofA said that besides being a record low, the average monthly mortgage payment is $80 less than this time last year. The incentive to get into the homebuying market is clear.
3. Strength prior to the onset of the pandemic
The report points to a “lean” housing market at the start of 2020 with low inventory, low vacancy rates, high home equity, and feasible debt levels.
Quite simply, the market is lucky it was strong heading into this year.
4. Urbanites are fleeing to the suburbs
BofA points to the urban exodus trend as one of the reasons housing was able to bounce back as quickly it did.
The shift to remote work that accompanied social distancing has been driving many urbanites to move to less dense areas — especially in the suburbs around New York City.
Business Insider spoke to four real estate agents — in Westchester County, the Hamptons, Northern New Jersey, and Southern Connecticut — who all said they’ve seen a massive influx of buyers from the city.
The data agrees.
An early June survey of 1,000 homeowners found 42% of those who bought during the pandemic reported entering into a bidding war. By the end of the month, June marked the second straight month that more than 50% of Redfin offers nationwide had been bidding wars.
5. Forbearance programs
Finally, during the pandemic, forbearance programs have been able to mitigate the risk of delinquencies, which has prevented foreclosures from flooding the market and bringing prices down.
BofA reported that as of July 12, 3.9 million homeowners, or 7.8% of all mortgages, were in forbearance. This number would surely have been higher without the stimulus passed in March, which provided one-time stimulus checks and expanded unemployment benefits.
Also, the Federal Reserve expanded its mortgage-backed securities holdings by over $575 billion during the pandemic, which the bank said has been a decisive factor in keeping rates low and housing affordable.
Much of the continued strength of the housing market would therefore likely depend on more stimulus measures, but congress allowed the unemployment expansion to lapse and is currently failing to find common ground on an extension.