Boom or Bust: The Uncertainties of the Housing Market Following a Global Pandemic
Similar to the wavering bullish and bearish tendencies of the stock market, the housing market also has its ups and downs. These ups and downs, dubbed ‘Booms’ and ‘Busts’, are known to correlate conveniently with personal consumption, which makes sense intuitively. Those actively spending and consuming more frequently when the economy is doing well are much more likely to be in the market for a new home. Sadly, it is not quite this simple as mortgage debt and personal disposable income, to name a few, are just some of the factors that may be considered when attempting to predict the movement of the housing market. This is explained in depth by a 2018 publication from the Federal Reserve of San Francisco. There is one thing, however, that these findings, for the most part, do not consider: a completely unpredictable flu-like virus acting on a global scale. Which, if it wasn’t obvious from our new everyday lives, has had a substantial impact on our economy.
As our nation slowly begins to reopen and attempts a return to normal, it is unclear how long a full economic recovery will take, if at all possible. As we have reached historical highs of unemployment that haven’t been seen since the mid 1900s, many global economists are prepared for the worst. With people scared to leave their homes, let alone sit in a diner for a bite to eat, it’s safe to say that personal consumption is extremely low. This is something we haven’t seen in past recessions, making the repercussions of this downturn even harder to predict and potentially harsher. Fortune writer Geoff Calvin reports that, “Consumer’s share of GDP reached a towering 68% in last year’s fourth quarter, higher than it got even in the 2006 to 2008 shopping festival that preceded the financial crisis and recession.” With personal consumption in the gutter, we can assume people aren’t exactly planning on going out shopping for their dream home this summer.
But it may not be all downhill from here. An economic fallout and repercussions from this extended time period of freezing personal consumption is certain, yet the extent and length of these repercussions are again, unknown. While this uncertainty may be the scariest part of this situation, it may also be the brightest, as its possibilities carry with it a glimmer of hope. It is possible that our economy may make a V or U shaped recovery instead of a W or L shaped. In summary, these types of recoveries are named after a letter that closely resembles the shape of their GDP growth following economic turmoil. V and U shaped recovery, for example, being the faster of the four, have only one initial dip in GDP that is quickly rebounded, thus forming a V or U shape, while W and L shaped recoveries have the possibility of more dips and slower rebounds.
Having sat in their homes for weeks, it’d be a safe guess to say that some people will go outside the first chance they get, bringing along with them their consumption. Dima Williams, Real Estate contributed for Forbes reports that, “In the first full week of May, on a seasonally adjusted basis, home buying demand - as measured by the number of requests RedFin agents’ receive - stood 5.5% higher than it was in early 2020, before the pandemic”. Tech-based real estate brokerages, such as Redfin, have even seen a sharp increase in listings. She adds that this is “the largest year-over-year slide of new listings - a little over 50%.” However, there is also the chance that the majority of the population remains inside, risk adversely awaiting a more sure and confidently safe end to this situation, before they go out spending big. These unknown reactions to unprecedented times and situations are part of what makes such predictions so hard to hit on the nose. This leaves much of the fate of the housing market in the hands of the people as they decide whether they are ready to return to the streets or not.
One thing is for certain though, we will recover. We’ve seen economic downturn before, and we will see it again, but never forget, the market acts in cycles. While there are busts, hardships, and lows they will eventually spawn booms, prosperity, and highs. We may not know when, and it may not be soon, but eventually people will return to their jobs, their families, and to their lives. They will bring with them once lost personal consumption, and a new normal. While house hunting has taken a pause, everything else has taken a pause with it, and as things begin to ease from a halt to back to regular speed, the housing market will do so too.
