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Even two years into the COVID-19 pandemic, Americans are finding that buying a home remains difficult. A growing work-from-home economy, fueled by households with new financial liquidity, has boosted domestic housing demand. Meanwhile, a housing construction industry weakened by the COVID-19 pandemic has allowed the national housing stock to shrink. Existing homes are selling faster and at record prices, with some states and metro areas hit harder than others.
The personal savings rate – a measure of income remaining after regular expenses and taxes – increased by 155% from January 2020 to January 2021 during the COVID-19 pandemic. Over the same period, more than a third of households reported an increase in time spent working from home. The combination has prompted American families to move, increasing the total demand for homes across the country.
However, labor restrictions and building material supply chain bottlenecks during the pandemic sharply reduced single-family housing starts in spring and summer 2020. Construction new homes did not return to its previous pace until later this fall; however, ongoing supply chain challenges continued to impact housing completions, reducing the national supply of homes available for sale.
The country’s available housing stock, which is measured by the number of months it would take for current inventory to sell, has fallen from a 2.6-month supply in the summer of 2021 to just 1.6 months at the start of 2022. Largely because of this, the U.S. home price index rose about 30% from January 2020 to the end of 2021.
The total amount of home purchases in the economy fluctuates seasonally, fading each fall and surging each spring as families tend to move during summer school vacations. However, the general trend reveals that when robust housing demand meets anemic housing supply, homes tend to sell faster and at a higher selling price, often above the asking price.
To illustrate, in 2019, the year before the pandemic, just over 37% of all homes listed for sale that year were sold within two weeks of listing. This proportion has increased to more than 52% in 2021. Additionally, the national sales-to-list price ratio has increased each year, surpassing 100% for the first time in 2021. Today, the average U.S. home is selling above its asking price.