According to Mark Roemer Oakland, COVID has changed the world in many ways. It has disrupted supply chains, changed the working culture, and caused a lot of stress and anxiety. Some sectors have been beaten down by it while others have gained. The real estate industry is one of the beneficiaries. Let’s check out the impact of COVID on the real estate industry.
- Effect of the pandemic on interest rates – The financial market and the real estate market are closely linked. The pandemic pummeled financial markets across the globe and put economies through a very rough time. Factories and businesses closed down, jobs were lost, and supply chains were disrupted. This caused unemployment to skyrocket and at that time the Federal Reserve stepped-in to slash interest rates and print more money to give out the $1200 stimulus checks.
As interest rates were slashed, the 30-year fixed mortgage rate also decreased. Those low-interest rates helped borrowers build equity faster. However, that also led to inflation and the war in Ukraine didn’t help in making the situation any better. That made the Federal Reserve hike interest rates to bring down inflation which directly pushed and doubled them since the beginning of 2022. So, the after-effects of the pandemic are yet to fade away even after two years.
- Supply chain challenges – During the pandemic. Global supply chains were disrupted and that stopped many property development projects and pushed up both construction and property prices. Availability of basic building materials like lumber, plywood, and concrete became very unpredictable and the market saw sharp swings. The price of building materials was hiked by as much as 300% during the pandemic.
The same disruptions and price swings happened in the production of steel, copper, and aluminum along with several adhesives and raw plastic for the building industry. It was a perfect storm that led to a shortage of everything from roofing materials and cabinets to electrical gear, insulation, and flooring. All those factors contributed to rising real estate prices.
- Supply and demand were tipped over – Data from the US census shows that over 12 million new households were formed between 2012 and 2021. In the same period, just over 7 million new houses were built in the country. This shortage and gap in supply and demand further exasperated during the pandemic.
Lower interest rates spurred more bids on properties and that drove up prices through the roof. This led to a bizarre situation where despite commercial spaces being vacant and more people losing their jobs, the average sales price of a new home increased by 12%.
Mark Roemer Oakland believes that the after-effects of the pandemic aren’t over just yet. With the Fed increasing interest rates to bring inflation under control and new supply chain disruptions due to new waves of the virus running through China, the cash flow in the market would be affected. That may make the real estate industry more volatile in the upcoming months.