Understanding the Housing Boom
By: Jake Willms, Quantitative Analyst
One of the most surprising things to me this year has been the continued surge within the housing market. Sales of new homes in the U.S. have advanced again in August, reaching the highest level since 2006. Moreover, the number of available homes for sale has nearly reached a three-year low.
The above graphic from Bloomberg.com visualizes this year’s housing surge well. Momentum has clearly been established. But what is causing this heightened economic activity during an international pandemic, during a recession?
First and foremost, interest rates are extremely low. Borrowing costs associated with purchasing a home are a huge incentive for potential buyers, and it’s undoubtedly a reason why so many Americans are buying homes this year. The Federal Reserve is set on holding low interest rates from the current near-zero mark until inflation is steady at 2%, so these conditions are likely to hold steady.
Another key component to the housing boom is the spike in those working from home. Coronavirus has revolutionized the remote office, forcing businesses around the world to adapt. Virtual meetings, remote collaboration, and other socially-distant work practices are making their way into normalcy. Perhaps this major shift has influenced people to seek an extra bedroom for a home office, or maybe space for a small gym to avoid the risks of the virus by going out. It’s clear that social distancing efforts have affected consumer demands for living.
With no end to the demand in sight, this ongoing housing boom is definitely something to keep your eyes on.