The pandemic is driving a major boom in the housing market that's breaking all kinds of records and exposing a very uneven economic recovery between the haves and the have-nots. The most dramatic increases are happening at the top end of the market — sales of homes costing $1 million and up have more than doubled since last year.
Millions of people are working from home while juggling their kids' remote schooling. And many who can afford to are buying bigger houses.
Home sales in September were up more than 20% from a year ago, according to the National Association of Realtors. And median home prices hit a record $311,800. That's about $40,000 more than just a year ago.
"It is great news for homeowners as they are seeing equity rise and rise," says Lawrence Yun, the chief economist for the Realtors group. But he says prices are rising too fast. Generally, he says, economists like to see home prices climb in line with people's wages. But in recent years, home prices have been rising much more quickly.
"It will eventually lead to a choking point where first-time buyers simply can not show up to the market," Yun says. Already the percentage of first-time buyers is decreasing — they represent about 31% of the market. In a healthy market, they represent 35% to 40% of buyers, Yun says.
He worries that if the trend continues, the country will see a further "divergence in society where you have the haves, with homeownership gaining their equity, and those people who would like to become homeowners continually being frustrated, unable to reach that goal of owning a home."
Low interest rates are helping to drive sales and push up prices. But Yun says the biggest reason home prices are rising so fast is that there just aren't enough homes on the market. Following the housing crash more than a decade ago, builders were building far fewer homes than usual. And that's created record-low inventories of homes.
The National Association of Realtors says there are fewer homes on the market today than it's ever seen in records going back to 1982. And when a home comes on the market it doesn't stay there long before it's sold — an average of just 21 days, Yun says.
"That is the fastest ever recorded in our monthly series," he says.
In fact, a lot more homes would be selling if there was more inventory, says Mike Fratantoni, the chief economist for the Mortgage Bankers Association. "The primary constraint to even more sales is the plummeting inventory of homes on the market, which is leading to bidding wars and spikes in home prices across the country," he says.
"Fortunately, we are seeing a pickup in the pace of construction," he says, "which should bring more inventory onto the market for next year's buyers."
Clearly though, for buyers where cost is less of an issue, sales are very strong. In fact, the more expensive the house, the bigger the increase in sales on a percentage basis.
Homes in the $100,000 to $250,000 range only saw a 4% gain in sales compared to a year ago, while sales of homes costing more than $1 million more than doubled.
Yun says he's never seen that happen before. But he thinks it shows that people with the resources to do it, "they are just going all in" — buying bigger homes to help ride out the pandemic, sometimes in resort towns.
And the trend isn't just among the superrich. Sales of homes between $250,000 and $500,000 saw a 36% gain from a year ago. But homes going for $500,000 to $750,000 saw nearly twice as big a percentage jump in sales.