Top 5 Reasons Why the Real Estate Market is on Fire

When the coronavirus pandemic happened, the real estate market saw some swift and steep increases in home prices and demand for new homes. One would think that the desire to purchase a new home was a symptom of the virus. While the pandemic did trigger a major shift in the industry, there are several other key factors that drove the huge growth in the real estate market during the last two years. Here are my top five catalysts which drove that growth:

  1. Low interest rates: Interests rates were already at historic lows, but after the pandemic, the government lowered them even further to help bolster this area of the economy. While rates during 2019 were around 3.5%, the average 30 year fixed rate was as low as 2.5% during 2020 and there were even some special mortgage products as low as 1.5%! This seriously increases one’s buying power and enables homebuyers to afford much more than they could in 2019 for the same monthly payment. With current rates still hovering below 3.0%, it’s still an excellent time to buy, even though you may be paying a bit more for a house than in 2019.
  2. A shift away from densely populated cities: This was especially true in New Jersey, where we’ve seen a huge influx of buyers from New York City. While some of the more densely populated cities had stricter Covid safety protocols it caused some people to question whether they wanted to live out the pandemic in a small apartment when they could be living in a spacious house with a private yard and plenty of rooms for a fraction of the price. This was a major factor driving some of the obscene prices we’ve all heard of during bidding wars.
  3. Low inventory: In sales, the principle of supply and demand is an unavoidable truth and it pertains to real estate as well. While the last two years have seen unprecedented demand in new home buyers, it has also seen a dip in inventory both in the construction of new homes and the number of new listings hitting the market. Even though the number of home sales may have increased, there simply aren’t enough new listings hitting the market to keep up with the strong demand.
  4. Inflation: While the relationship between inflation and the increased demand for home purchases might not be readily apparent, it’s certainly a factor. Inflation fears lead people to steer away from cash investing since their cash value may not be worth as much once we see inflation take hold, so they seek alternative investments. Simultaneously, the stock market has seen extreme volatility so many investors see real estate as a stable place to invest which will somewhat insulate them from inflation issues as the value of real estate will maintain value better than cash investments.
  5. Psychological Factors: Of course, there are psychological factors at play as well. With social media being so pervasive and ubiquitous, we are all seeing more people post pictures of their new homes or pictures of them receiving the keys to their new home at closing. These things create the desire within our minds and the whispers of “maybe it’s time we buy a house instead of rent.” We’re human and we live in a society. As such, we sometimes individually want what the collective society wants. If you find yourself in this position, give me a call and I can walk you through the home buying process from contract to closing so you know exactly what to expect.

Understanding these factors and their influence on the market can help us predict how long this seller’s market will last and help us forecast where home values may go in the future. For now, it seems the market still has plenty of fuel to drive healthy sales in 2022. If you are looking to sell your home and take advantage of this market, give me a call and I’ll walk you through how we can net you top dollar for your home.