What the Housing Market Might Be Like After COVID-19 Fades

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What will the housing market be like after COVID ends? This question is top of mind for a lot of would-be home buyers, real estate professionals, and others with a vested interest in the U.S. housing market.

COVID 19 concept image

But this question also begs another: Will COVID ever really end?

Many experts believe the virus behind the disease will remain with us for a long time, but with less severe symptoms. Some believe it will eventually become a perpetual nuisance, like the common flu.

But we’re getting into the weeds of epidemiology here. This is a real estate news site. So let’s talk about what the housing market might be like after the COVID pandemic subsides.

What Will the U.S. Housing Market Be like after COVID?

For the rest of this article, the phrase “after COVID” refers to the eventual end of the pandemic (as opposed to the eradication of the virus itself).

If vaccination rates in the U.S. continue to climb, and the virus becomes less of a health threat, it could affect the housing market in several ways. Here is what the real estate market might be like after COVID subsides.

1. The current housing market frenzy could cool down.

The coronavirus pandemic caused a housing boom in the United States. It’s counterintuitive, but true.

While the COVID crisis unwound other aspects of the economy, it gave the U.S. real estate market a major push. Suddenly, a lot of folks were relocating and purchasing homes with office space and other amenities.

Over the past year or so, home buyer demand soared in cities across the country. This drove an already depleted inventory situation into the ground. Through the second half of 2020 and first half of 2021, buyer demand far exceeded the available supply of homes. This led to rapid price growth, bidding wars, and offers above the asking price.

But what will the housing market be like after COVID fades?

For one thing, the current home-buying frenzy could begin to cool down. We are seeing signs of this already, in terms of sales and prices.

According to a June 2021 report from RE/MAX, home sales in the U.S. dropped unexpectedly from May to June of this year. The report also stated that house prices were “uncharacteristically flat” in the 53 metro areas analyzed.

According to RE/MAX president Nick Bailey:

“The first small step toward a more balanced market may have appeared in May, as home prices finally stabilized after a long run of sustained increases. At the same time, cooling sales defied typical April-May trends and report records were set for low inventory and fast turnaround times.”

Many economists expect this gradual slowdown to continue through this year and into 2022. If that turns out to be true, the housing market “after COVID” could be a bit more slow-paced than what we’re seeing now.

2. Home price growth could slow down, or even level off.

According to the real estate data company Zillow, home prices in the United States rose by around 13% over the past year or so. This was reported in early July 2021. The company expects the national median home value to rise by double digits over the next year, as well.

But this positive prediction applies to the nation as a whole, as opposed to individual housing markets. It’s also based on current housing market trends, and we are already seeing signs of change within the market. So it’s possible that some cities across the country could see a slowdown in home-price appreciation over the next year.

After COVID subsides, some housing markets across the country could experience what economists refer to as a “market correction.” In this context, the correction would involve a slowdown in price growth — or perhaps even a decline in house values.

In a June 2021 opinion piece for CNN, Moody’s Analytics chief economist Mark Zandi wrote:

“Home prices have risen so far, so fast, that they have become overvalued … Overvalued housing markets are vulnerable to a meaningful price correction as mortgage rates eventually rise. And they will.”

Over the past year, home values in the U.S. have risen at an unusually fast pace. Today, many cities are considered to be overvalued from a real estate standpoint. That doesn’t mean that a major market crash is imminent. But it does mean prices could slow down or decline over the next couple of years.

The housing market after COVID will likely bring a slower rate of appreciation. This would be a positive change, in terms of overall market stability. Double-digit annual price gains aren’t sustainable over the long term. In addition to causing housing affordability issues, rapidly rising home values can create a bubble type scenario.

At this stage, anyone who is interested in the long-term stability of the real estate market should welcome a slowdown in price growth. And that’s a very likely housing scenario after COVID begins to fade.

3. More homes could come onto the market.

As we wrote in a previous report, it appears that more homes are coming onto the market across the U.S.

On July 1, Realtor.com published a report that showed an unexpected increase in new real estate listings nationwide. According to their report, the number of new property listings rose by 10.9% from April to June 2021. New listings were up by 5.5% when measured year-over-year.

After the COVID crisis wanes, the housing market could see an additional boost in inventory. It stands to reason that more and more homeowners would be willing to get back into the market, once their pandemic-related concerns begin to fade.

This would be a positive development from a home buyer’s perspective. Housing inventory levels have been hovering near record lows for the past year. Supply is particularly tight at the lower end of the pricing spectrum, which includes the starter homes often favored by first-time buyers.

If the housing market gains inventory after COVID, it will help sustain the real estate industry as a whole while easing competition among buyers.

4. Mortgage rates could go up.

As of early July 2021, the average rate for a 30-year fixed mortgage loan was hovering around 3%.

Many analysts expect that rates will rise gradually through this year and into 2022. For instance, both Freddie Mac and the Mortgage Bankers Association recently issued forecasts predicting higher rates next year.

Inflation could also drive up interest rates. Historically speaking, mortgage loan rates tend to rise during times when inflation is rising. And there has been a lot of buzz about inflation lately.

As the health crisis fades, we will likely see corresponding economic growth in the United States. This too could put upward pressure on mortgage rates.

Due to these and other factors, the housing market after COVID will likely bring higher borrowing costs compared to where we are right now.

5. Digital / paperless transactions will remain in place.

Even before the COVID pandemic, the real estate and mortgage industries were moving toward a more paperless and digitized workflow. Digital document signing and “e-closing” procedures were becoming more and more common.

The COVID pandemic gave this trend a huge push. Suddenly, real estate and mortgage professionals were forced to adopt digital and remote business models just to survive.

This evolution will likely continue going forward. The housing market after COVID will be much more digitized, when compared to the more paper-heavy real estate transactions of the past.

Disclaimer: This article includes projections based on current housing market trends and long-term speculation. Such predictions are the equivalent of an educated guess and should be treated as such. The Home Buying Institute makes no claims or assertions about future real estate trends.