More Home Buyers Enter the Market Despite Millions Seeking Relief

By Bruce Harpham Sunday, October 11, 2020

The US housing market is having a tough year. Millions — 3.6 million as of October 2 — of mortgage holders have requested relief from their mortgages. That represents over $700 billion of mortgage loans that might not be repaid.

Is the Pent-Up Demand for Home Purchases Ending?

In the spring of 2020, government restrictions related to the pandemic triggered a slowdown in home buying activity. As a result, we saw home sales plunge 18% in April 2020. By July 2020, buyers were starting to return to the market in significant numbers, with sales of existing homes increasing by 24.7% compared to June 2020.

Two indicators from a Mortgage Bankers Association (MBA) survey hint at a slowing market. First, the MBA found that mortgage applications decreased by nearly 5% for the week ending September 25, 2020, compared to a week before. Also, prices appear to show a decrease. MBA research found that the seasonally adjusted Purchase Index decreased 2% while the unadjusted Purchase Index decreased 2% compared with the previous week.

These short-term declines may suggest that low borrowing costs are no longer enough to keep the housing market going.

Mortgage Borrowing Costs Remain Low Thanks to the Fed

Even as millions of homeowners seek relief from their mortgage payments, the government remains committed to encouraging homeownership. The Federal Reserve interest rate of 0.25%, affirmed again in mid-September 2020, marks six months of near-zero interest rates. The Fed has signaled that it is willing to tolerate increased inflation to encourage economic growth.

Key mortgage interest rates have also stayed very low.   At a national level, the average contract interest for a 30 year fixed rate mortgage decreased to 3.05% in September, down from 4% a year ago, according to the Mortgage Bankers Association. 

Further, these low borrowing costs are likely to stay around for the foreseeable future. In a September 2020 interview, Federal Reserve Chairman Jerome Powell said, “We think that the economy’s going to need low-interest rates, which support economic activity, for an extended period of time... It will be measured in years.”

How the Pandemic Is Reshaping Housing Demand

The year 2020 meant more than six months of working from home. Whether it is a desire for larger home office space or greenspace, buyers are moving out to the suburbs.

Despite the increasing impact of the pandemic, the US housing market continues to see demand. In Florida, house prices in suburban communities have increased by 3.2% since March, while urban prices have only increased by 2.3%, according to realtor.com data. This development is not unique to Florida, either.

In America’s top ten largest metro areas, the median listing price for suburban homes increased by 5.2%. That rate of price increase is more than double the 2.4% price increase observed in urban areas. Even virtual home buyers are showing a slight suburban preference. Realtor.com reports that “the number of suburban home shoppers on realtor.com® grew by 53.9% since last year, compared to a 50.7% increase for urban home shoppers.”

Airbnb and Short-Term Rental Market

Airbnb and other short-term rental services are having a tough year in the housing market. In the second quarter of 2020, Airbnb’s revenues fell 67% compared to the same period of 2019.  Earlier in the year, the company reported more than $1 billion in cancellations as anti-pandemic lockdowns froze the travel market. Due to these challenges, Airbnb’s highly anticipated 2020 initial public offering (IPO) is likely to be postponed.

Falling traveler interest isn’t the company’s only challenge. Governments around the world have stepped up regulatory action for short-term rentals. Cities are starting to use AI tools to enforce restrictions on Airbnb and collection revenue. According to Short Term Rentalz, “Nashville pays Host Compliance $250,000 annually but has increased short-term rental tax revenue by $2.9 million.” In Toronto, city officials have started to enforce Airbnb regulations, which were announced in 2018.

 A fall in investor demand in the housing market may put a further brake on housing prices. However, domestic tourism in the form of road trips and other short-range trips may provide relief for Airbnb hosts worried about empty rooms.

This Startup Is Set to Win Big in the 2020 Housing Market

Some companies are finding ways to respond to evolving customer demand for housing in 2020. AfterrHome, a startup that won DC Startup Week’s pitch competition in 2020, promises home buyers a home inspection report in one day. Furthermore, the company lets buyers only buy 50% of the inspection fee upfront. Such flexible pricing may appeal to anxious homebuyers.

About the Author


Headshot of Bruce Harpham

Bruce Harpham is an author and marketing consultant based in Canada. His first book "Project Managers At Work" shared real-world success lessons from NASA, Google, and other organizations. His articles have been published in CIO.com, InfoWorld, Canadian Business, and other organizations. Visit BruceHarpham.com for articles, interviews with tech leaders, and updates on future books.

Related Articles