Seven Reasons Why the Housing Market STILL Hasn’t Recovered From the Pandemic

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The pandemic swept through the U.S. housing market like a tsunami. Radical price hikes and all-time low inventory accompanied massive migration away from pricey big cities. Four years later, the housing market still hasn’t fully recovered. If you plan to invest in real estate or scale your existing portfolio in 2024, it’s worth keeping these six things in mind for a clearer perspective on today’s market movement.

Inventory Is a Mixed Bag

While inventory around much of the country is still way below pre-pandemic levels, realtor.com reports that cities in Texas and Colorado have shown an increase in inventory. In San Antonio, the increase was a dramatic 27.1%; in Austin, it was an impressive 18.1%, while Dallas and Denver registered a robust growth of 4.6% apiece.

Regardless of growth in some areas, the majority of the country still faces a low inventory environment, an outgrowth of the pandemic.

More Homes for More Jobs in Texas

The high demand for jobs in Texas, particularly in the major tech and industry hubs of Austin, Dallas, and San Antonio, has attracted movers from both coasts seeking sunshine, a low cost of living, no state income tax, and solid employment. According to the U.S. Census Bureau, from 2000-2022, over 9 million people moved to Texas. In 2023, Texas’s population rose by 473,453. The state produces $2.4 trillion in new goods and services each year, making it the eighth-largest economy in the world. Its gross domestic product grew at a rate of 7.7% in the third quarter of 2023. In comparison, American GDP growth was about 3.0%. Thus, there’s never been a better time to build more homes in Texas due to the influx of new residents needing places to live regardless of higher interest rates.

But the massive influx of migration into Sunbelt regions like Texas is in large part caused by the pandemic and the shift to remote work, and something we’re still experiencing nearly four later. 

Home Prices Keep Rising 

In other states, however, the outlook is not so rosy and has remained a component of the post-pandemic recovery. Here’s an overview of why prices continue to rise and an outlook for investment:

• A chronic lack of inventory, exacerbated by the pandemic with supply chain delays and the lack of a workforce, has meant home prices keep rising despite high interest rates. According to the National Association of Realtors (NAR), in February, prices were up 5.7% over last year. 
• With more buyers than sellers, prices seem unlikely to crash. So, if you’re looking to invest—other than some overheated pandemic hotspots such as parts of the Mid-West, Florida, and Austin, where prices have dropped—you’ll unlikely lose money on your home’s value.
• When rates drop and prices increase, you’re likely to gain equity. With two-thirds of existing mortgages under 4%, unless there’s a compelling reason for a homeowner to move, as has been the case in Texas, expect inventory to remain tight and prices high.

The Lack of Competition Means Now Is a Good Time To Invest

High interest rates cause investors to vanish. The only ones left standing are those who have cash to spend or can be creative or innovative with their financing, which, in reality, is a few people. The lack of competition causes some sellers to become desperate, making them prime targets for investment. 

According to NAR, existing home sales were down 3.3 percent from February 2023 to February 2024. This dovetails with the Fannie Mae Home Purchase Sentiment Index released in March 2024, which shows that an overwhelming 79 percent of consumers believe it’s a bad time to buy a house.

The Pandemic Turned the U.S. Into a Renter Nation

High interest rates, high prices, and a lack of housing inventory have made the current real estate market a haven for potential landlords. “Housing is becoming a luxury good,” Christopher Mayer, a Columbia University economist, told USA Today. “It’s the least affordable housing market in recent memory,” Daryl Fairweather, chief economist at Redfin, concurred in the same article. 

In many U.S. cities, renting is cheaper than buying. According to the National Association of Realtors, the median sales price for existing homes rose from about $350,000 in 2021 to a seasonal peak just above $400,000 in 2023.

The pandemic introduced the nation to remote working, which allowed workers to live in new, more affordable cities for a period of time before moving on to somewhere else, shunning the idea of homeownership and an onerous mortgage.

Landlords Continue To See Rents Increase

According to Zillow, rental prices have increased by almost 30% since the pandemic, clocking in an annual increase of 7% over the last four years. Although two-thirds of the increases happened in 2021, the aftereffects of high inflation and lower rental inventory have seen rents trend upwards from a year ago in 47 of 50 of the largest metro areas. The largest rental drops were only modest—less than half a percent in some cities that had witnessed particularly exuberant growth. 

This means prospective landlords buying investment properties today can benefit from high rents to match their high interest rates. However, landlords who buy cash or assume a mortgage will benefit the most.

The Housing Market Is Uneven

“The February jump in sales activity illustrates the strength of demand in many markets. Buyers are out there looking for homes,” RE/MAX president Amy Lessinger said in her company’s report. “As the market has continued to rebalance, both buyers and sellers seem to be adjusting their plans and making moves they may have had on hold for a while.” 

The term “rebalance” is only relative, with most of the country still inventory-starved and not yet back to pre-pandemic levels. With a strong jobs market and healthy economy, home sales are down to how many homes builders can build and whether homeowners with high rates can afford them. 

Another factor is whether builders can afford to build the homes. Lenders are skittish about financing homes that might not sell due to high interest rates and construction costs that have soared. The result has been a lag in new homes despite the apparent demand.

Final Thoughts

Date the rate, marry the home—that has been the sage advice from investment experts. We are still looking at 7%+ rates, which is a pandemic holdover from stimulus checks and wild inflation. When rates do eventually come down, expect a buying bonanza and more price hikes, so if you can afford to ride out compromised cash flow, now is the time to buy.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.