So far in 2020, uncertainly has been the norm — and we’re not through with it, yet. A national election, questions about the economy and the handling of COVID-19 all still hang as questions in our current reality and our near future.
Yet, the real estate market continues to move ahead. In a year filled with clouds of uncertainty and some dismay, residential real estate has been an undeniable bright spot shining through.
The real estate market has been strong in 2020. West Michigan’s market began the year up about 8% in overall activity from the year prior. With the emergence of COVID-19 and stay-at-home orders in Michigan, the market throttled back but was not halted.
Even under those conditions, sellers, buyers and realtors managed to complete roughly 60% of the transactions that would have happened during a similar period from the year before.
On May 7, upon a partial lift of restrictions on real estate related activities in Michigan, the real estate market roared back to trend. Prices continued a yearlong upward trend, and activity outpaced the same period last year. Spurred on by low interest rates and positive value increases, real estate has been a bright spot indeed.
But can this positive trend persist?
The short answer is, yes. The rise in real estate that we are experiencing can and likely will continue. Having personally lived through the housing downturn of 2008 and subsequent years, I’m not one to make that statement lightly.
Markets can and do sometimes go down. But that isn’t likely for the residential real estate market now or in the near future. Here’s why:
Healthy demand for homes
Strong buyer demand has been a hallmark of the real estate market for years now leading up to the onset of the pandemic. COVID-19 didn’t change that.
Having come into this time with healthy demand stemming from demographic trends and significant activity by millennials, in particular, the real estate market was uniquely positioned to weather the pandemic storm. And the trends for demand aren’t going away any time soon.
Home means more now than ever before
If the pandemic has shown us anything, it’s that our expectations and needs for life at home have expanded. More than just a place to lay our heads, we’ve had to use our homes in new ways for work, for school, for entertainment and for being together more.
In the noise of the world, home has become a place of sanctuary. For all these reasons, the reinvigorated ways that we value and appreciate our homes will continue to strengthen the market.
Interest rates appear poised to stay low
The opportunity to buy with the advantage of low rates will continue to drive buyers. Based on the economic turmoil caused by the pandemic, policymakers have moved toward spurring economic growth and have done so with the power of interest rates.
The U.S. Federal Reserve has suggested that it will leave the federal funds rate at a historic low as far out as 2023. There is some risk that inflationary pressures caused by massive government spending may cause consumer rates — and, therefore, mortgage rates — to rise, but most economists don’t see that happening anytime soon.
An election will soon come and go. The economy will face and deal with ongoing headwinds. COVID-19 will be with us as a serious health concern for some time yet. But despite these challenges — and in part because of them — we have every reason to believe that residential real estate will continue to be a bright spot in the months and years ahead.