Impact of COVID-19 on the Housing Markets – Part 7

This post is Part 7 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.

In Part 2, I discussed the factors impacting the market today. For context, this was written in August 2020. As we covered in Part 1, pricing is a function of supply and demand.

In Part 3, I discussed why we think demand will drop off in 2021 due to instability of income.

In Part 4, I discussed how we think COVID-19 will impact the supply of housing going forward. Basically, we think that the housing market is facing a huge wave of foreclosures in the tens of millions and we explained why in this post.

In Part 5, I discussed what we need to be watching for now to move to the next stage of investing in housing.

In Part 6, I discussed we will watch and do once the government stops supporting the economy, vaccinations for the coronavirus are freely available, and the economic forces of the housing market are allowed to play out.

In this blog, I will discuss some other factors to watch besides the basic supply and demand of housing.

I expect that raw materials prices will generally increase over time due to the following factors. There will very likely be a shortage of some raw materials due to decreased manufacturing activity because of personnel being out sick or shipping restrictions due to border closures or tariffs that have increased in recent years. Any and all of these are potential factors that could translate to increased cost of raw materials and increasing the cost of building and remodeling housing.

The fact that the Federal Reserve and the Treasury department have significantly increased the money supply into the economy will likely increase the possibility of inflation. The Federal Reserve and Treasury have introduced several trillion dollars into the economy. Inflation often first starts to show up in real assets and raw materials and land. More risk of increasing prices.

These increasing costs that can show up in the cost of building housing can take some marginal buyers out of the market and decrease the demand.

However, another factor to consider is interest rates. All indications are that the Federal Reserve will keep interest rates very low for the next several years to help the economy get back to growth and maintain growth to keep putting people back to work.

Low interest rates help more people afford to buy.

So, at this time, I can’t really determine whether in whole these factors will help or hurt the housing markets, but these are factors we will have to monitor as the housing markets work to balance out.

What data will you be watching?