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Understanding How The Pandemic Has Changed The Housing Market

In this Sept. 21, 2010 photo, a construction worker moves boards at a new home site, in West Des Moines, Iowa. Sales of new homes improved last month after the worst summer in nearly five decades, but not enough to lift the struggling economy.(AP Photo/Charlie Neibergall)
Charlie Neibergall
AP File
Homeowners have seen their properties appreciate, and first-time homebuyers may feel like they’re priced out of the market.

In cities across the country, homes have been selling well above the listed value. Homeowners have seen their properties appreciate, and first-time homebuyers may feel like they’re priced out of the market. In May of this year, the median sales price of a home hit an all-time high.

The Des Moines metro area and other cities in Iowa are no exception to that trend.

The country “had a strong market pre-pandemic,” said Tracy Turner, an associate professor of finance at Iowa State University’s Ivy College of Business. “And then the conditions during the pandemic, combined with low interest rates, combined with some other factors on the supply side, including kind of low inventories in most places around the country, helped to fuel house prices.”

Turner focuses primarily on residential housing markets, homeownership and looking at how housing markets behave. She spoke with Ben Kieffer on River to River about these housing trends and made predictions about what she expected to see in the future, particularly in Iowa.

Why is buying a house so expensive right now?

As Daniel Wheaton reported in March, even as the nation’s largest generation has begun buying homes, the pandemic has slowed home building. In addition to worker shortages and shipping bottlenecks, the costs of needed building supplies have increased.

But now that some of these issues have begun to dissipate, – for example, the once-exorbitant price of lumber has begun to drop – home prices may begin to even out. Still, the extent to which these shortages and other factors will continue to affect the market is unclear.

“That lumber issue is really kicked in on inflating house prices,” she said. “This demand (for housing) is fueling new construction. We'll see in the coming months when the new data comes out, how much it's pushing prices up in the local Des Moines area.”

And, Turner notes, the Midwest is a construction-friendly region.

“Housing markets are really local, and they depend both on the ability geographically to expand, but also on regulatory restrictiveness,” said Turner. “And that's what we tend to see in cities like, say, Des Moines, Kansas City, Minneapolis.”

How does this affect the rental market?

These trends affect not only buyers and sellers, but also renters in the community.

“At a given point in time, you have a group of renters and a group of owners in a location,” said Turner. “And if there's population growth, and that new population can't filter into owning as easily, then that population growth is going to put pressure on rental markets, and we're going to see strong rents or rising rents.”

Rents for luxury apartments in densely populated places like New York, an epicenter for the spread of the coronavirus, plummeted as people who could work from home and afford luxury apartments in the cities moved out and began buying homes. Some landlords went so far as to offer months of free rent as people left the city. Meanwhile, rent for lower-income apartments around the country stayed the same or even rose, along with the unemployment rate. Middle-income renters who lost their jobs have increased the demand for more affordable rentals.

As some have been pushed out of the buying market and others have seen their rents rise, Black Americans and people of color have been affected disproportionately.

“We know from historical factors there are various reasons why,” Turner said. “But what we know is that minority groups have substantially lower homeownership rates in the U.S. And I think that that creates an impediment. So if you didn't grow up in a family that owned, there could be an impediment for you. You don't have that learning or support factor from parents that own their housing to be able to purchase your own housing… that, I would say, that's exacerbated by a situation where you have really heated markets.”

What's next?

Looking ahead, some Americans may fear a housing bust similar to what the country saw in 2008, when the housing bubble burst as a part of the larger financial crisis. Economists have noted that mortgage underwriting standards are stricter than they were in 2008.

And Turner said that a similar bust is unlikely. Turner said she expects that as more inventory becomes available “within about a year,” home prices will settle. “The rate of inflation is typical, but we should see this sort of frenzy of multiple bidders on one property, that should be slowing down,” she said.

You can hear the full conversation between Turner and Kieffer on River to River.

Caitlin Troutman is a talk show producer at Iowa Public Radio
Ben Kieffer is the host of IPR's River to River
Rick Brewer was a producer for IPR's Talk of Iowa and River to River