U.S. Housing Prices Remain High Amid the Pandemic

The U.S. housing market has been uniquely affected by multiple factors relating to the pandemic.

The COVID-19 pandemic has affected everything from travel and entertainment to work life, schooling and the housing market.

Demand for homes is high as Americans looking for breathing room are leaving overpopulated cities for more rural areas and/or larger houses. Meanwhile, historically low mortgage interest rates coupled with a tight inventory have led to inflating housing prices across the U.S.

Home prices grew around 8.9% nationally through November 2020, a 9.5% year-over-year increase, according to Fitch RatingsU.S. RMBS Sustainable Home Price Report, which posits that home prices are 5.5% overvalued.

The pandemic has delayed new housing construction, and although it is still considered a seller’s market in most areas, many homeowners are reluctant to sell. The hesitance to host open houses and a sudden reliance on virtual tours and private showings is one hurdle. Economic instability brought on by the pandemic is another factor.

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“Personal income trended down to pre-COVID-19 levels in the fourth quarter as stimulus and unemployment programs waned,” according to Fitch. “Recovery slowed while unemployment remains elevated; income and unemployment levels in 3Q20 were not supportive of long-term sustainable price growth.”

The report also found that home prices in about 25% of the country’s metropolitan statistical areas are over 10% overvalued. This is likely a result of recent emigration from places like California and NYC, which has led to low housing supply and high demand in surrounding areas.

In terms of large metro areas, Las Vegas was said to be the most overvalued region (28%) while states like Idaho (30%-34%) and Nevada (25%-29%) are seeing home prices become unsustainably inflated.

When it comes to the Northeast, “historically more sustainable markets like Rhode Island … are now seeing similar disconnects between home price growth and economic fundamentals in place to support the rate of growth,” according to Fitch Ratings. Homes in Rhode Island are 10%-14% overvalued according to the report.

Fitch experts estimate that housing prices will continue to increase throughout at least the first quarter of 2021.

For more information on homebuying in 2021, see here.


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