Impact of COVID-19 on the Housing Markets – Part 2

This post is Part 2 of a multi-part series on the impacts of COVID-19 on the Housing Markets. In Part 1, I laid the foundation for what we see in the different phases of the typical economic cycle for the housing markets.

Today, I will discuss the factors impacting the market today. This is written in August 2020. As we covered in Part 1, pricing is a function of supply and demand.

During the summer of 2020, we still have at least a normal level of demand to buy housing in the U.S. Due to COVID-19, more people want to move away from the dense part of typical cities and the cities that are denser overall to the suburbs or small to medium sized cities. So, demand is currently on a normal to maybe elevated level of demand.

However, a significant percentage of sellers took their homes off the market when COVID-19 hit. It seems that the people that were planning to sell and move now are waiting to see how the impacts of COVID-19 play out and where they will be working and how they will be working. So, supply has been cut drastically.

The decrease in supply has caused prices to increase and make it appear as though there is a boom in the housing market. But the number of transactions is actually down.

Remember what Wayne Gretzky said “A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be.”

So, should we be reacting to what is going on in the housing market today? Or, should we be trying to determine where the housing market is going and preparing for that next phase of the market?

First, let’s look at what can impact supply going forward.

This will be heavily impacted by what the government does related to support for the unemployed. To date, the government, through the CARES Act and following legislation, has provided support for unemployed allowing them to continue paying rent and mortgage payments. Additionally, the government has put in place temporary bans on evictions and foreclosures. All of this is delaying the pain.

It is fairly clear by now that the general population is not as comfortable as they were prior to COVID-19 in going to restaurants and theaters or traveling. This has resulted in lower demand for service businesses where millions of people were employed. Those businesses can only survive as long as the government supports them. It is highly unlikely that there won’t be millions of people permanently out of work at some point in the future.

At some point, the government will stop providing support for businesses and employees. At that time, we will have to go through the process of people moving out of rentals and owned homes that they cannot afford. When this happens, there will be a significant increase to the supply of homes for sale. A significant percentage of these will be owned by banks and banks don’t like to own real estate. So, the banks will sell at low prices driving down market prices.

Second, let’s look at what can impact demand going forward.

This will be heavily impacted by what the government does related to support for the unemployed. As discussed above, at some point, the government will stop supporting the unemployed. When that happens, there will be a large decrease in demand for housing at the same level those people enjoyed prior to COVID-19. In other words, those affected people will move down the quality scale of housing to get lower cost housing.

However, another factor is whether home builders will be able to keep up with the demographic demand from the Millennial generation. I described this demand increase in a blog post on May 27. There is growing overall demand for housing due to the size of the Millennial generation and the age brackets that those people are moving through over the next 10-20 years. This is a factor that will push demand back.

So, while we do believe there will be a significant decrease in demand in the near future, we don’t believe that it will last for very long.

Third, how are interest rates likely to be impacted going forward.

I don’t think I’m even going out on a limb at all when I say that my opinion is that interest rates are going to stay low for the foreseeable future. My thinking is the next 5-10 years. There is so much evidence I can point to that this would require a whole different post. That’s my opinion. Your’s may differ. But I think interest rates will be supportive of the housing market for a long time to come.


Our conclusions for this post are:

  • What is happening now in the housing market makes it look like prices are going up.
  • We should focus on where the housing market is going, not where it currently is today.
  • The pain of the recession caused by the forced government shut downs has been postponed with government support of employees and businesses.
  • There will be recessionary forces due to people’s fear of going out in public and that will hit many types of service industries very hard leading to millions of unemployed people permanently.
  • It is currently unknown how long the government will continue to support employees and businesses through this.
  • At some point in the future, the economy has to level set and allow the pain of the unemployed to flow through the housing market.

In some future posts, I will try to address the numbers of people we can expect to lose there jobs permanently and where we might start to see people relocating to.