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How the US Housing Market will React to a COVID Vaccine

By January 21, 2021
How the US Housing Market will React to a COVID Vaccine

On December 14, one of the biggest vaccination campaigns in the history of the United States kicked off as health workers readied to receive the COVID-19 vaccine. A month later, the vaccine rollout across the country is undergoing some last-mile logistical issues trying to provide the shots to a maximum number of people.

However, the roll-out of the vaccine has brought in positive news and a glimmer of hope for everyone in the New Year. Experts hope that the vaccine will have a positive effect on consumer confidence that things are going to return to ‘normal’ later in 2021.

Once the logistical issues are addressed and the vaccine is more widely available, there are chances that life may slowly return to normal – or something with a semblance to it. People may start going to restaurants more freely, going shopping, going on vacations, and indulging in all other activities that could stimulate the economy. It is possible that this improved outlook would then be reflected in higher yields on Treasury notes and other long-term bonds, which would in turn give a lift to mortgage rates.

In fact, positive vaccine developments and increased talks of additional stimulus that have driven the economy to move ahead also prompted Fannie Mae to update its prediction for 2021’s housing market growth. Its 2021 forecast has gone from 3.3% growth to 4.5% growth, a healthy 1.2% increase. Fannie Mae has even predicted that 2022 will experience 3.2% growth, which has increased 0.2% since November’s original prediction.

Some other studies are predicting a 21.9% growth in the housing market in 2021, which will be the highest annual sales growth since 1983. This exponential growth will be driven by the COVID-19 vaccine rollout and the following economic recovery. There are several factors why the arrival of the Covid-19 vaccine is likely to give a major boost to the housing market in the US.

As the vaccine is distributed, the economy is likely to open up and show signs of recovery. Economic activity will most likely return to pre-pandemic levels by late 2021 or early 2022. The Federal Reserve will continue to support a low-interest-rate environment for some part of 2021, and the mortgage rates can be expected to remain low for the year. This means home sales will possibly stay strong due to the low-interest rates and the recovering economy.

Another reason for positive developments could be that with so many people enjoying working from home — and employers realizing that it doesn’t necessarily hinder productivity — remote working will remain popular even after the pandemic. This means more and more people would want to buy their own spaces and invest in good properties.

While the US has kickstarted vaccinations, in other countries, the vaccine schedules are still in the nascent stages. The US may be able to vaccinate most of its citizens by the end of 2021, but other countries may struggle to distribute vaccines. Because of this, the global economic recovery could take much longer, which would make US mortgage-backed securities attractive to international investors, keeping mortgage rates low. Americans will continue to buy homes and as a result, 2021 will see more home sales than any year since 2006.

Also, when the pandemic hit, a seminal number of people started moving out of densely-populated cities to the suburbs. Most were exploring areas that were not only affordable but also spacious. They wanted to avoid crowded cities where the virus was spreading rapidly. However, when the vaccine becomes readily available and economies open up, many of those who left the cities temporarily may return.

Another possibility is that once the vaccine rollout is completed, the competition in the housing market may grow significantly. In 2020, mortgage payments had become increasingly affordable due to the historically low mortgage rates. Several homeowners ended up taking advantage of this and refinancing their existing home loans. With the arrival of the COVID-19 vaccine, when the economy may rebound in 2021, home prices may be driven further by intense competition for the few properties available for sale.

But right now, it looks like 2021 will see a historically strong first half for the housing market, driven by crisis-level inventories, low-interest rates, a post-vaccine economic rebound, and a big demand for homes from millennials. The rest, of course, will be a wait and watch the situation.

Visionet continues to support mortgage lenders as they process fresh originations as well as refinance transactions. With its AI/ML-powered technology, it helps lenders reduce costs and closing time in mortgage originations. Do get in touch with us today to understand more. Reach us on bfsi.marketing@visionet.com

Visionet Marketing Team

Visionet Marketing Team

Visionet is a leading digital technology solutions provider for the BFSI and Residential Mortgage industry. We are passionate to deliver exceptional business outcomes to our clients leveraging deep industry expertise and proprietary mortgage technology products. We post our views on mortgage technology and industry updates through this blog.