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Even two years after the COVID-19 pandemic, Americans are finding that home buying remains a challenge. A growing work-from-home economy, fueled by households with newfound financial liquidity, has boosted the country’s demand for homes. Meanwhile, a housing industry weakened by the COVID-19 pandemic has shrunk the national housing stock. Existing homes are selling faster and at record prices, with some states and metro areas being hit harder than others.
The personal savings rate — a measure of people’s income left over after regular expenses and taxes — surged 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 the time they worked from home. The combination prompted American families to relocate and increased overall home demand across the country.
However, labor restrictions and shortages in the building materials supply chain during the pandemic caused single-family homes to fall sharply in the spring and summer of 2020. New housing construction only reached its previous pace later in the fall; However, ongoing supply chain challenges continue to impact home completions and reduce the supply of homes for sale nationwide.
The country’s available housing stock, measured by the number of months it would take for the current stock to be sold, has fallen from 2.6 months supply in the summer of 2021 to just 1.6 months supply early dropped in 2022. In large part because of that, the U.S. home price index rose about 30% from January 2020 through the end of 2021.
The total volume of home purchases in the economy fluctuates seasonally, fading each fall and booming each spring as families typically move during the summer school holidays. However, the general trend shows that when robust housing demand meets weak housing supply, houses tend to sell faster and at a higher selling price – often higher than the asking price.
To put this in perspective, in 2019, the year before the pandemic, just over 37% of all homes for sale that year were sold in less than two weeks after the listing. This share rose to over 52% in 2021. In addition, the national sales price ratio increased every year and exceeded 100% for the first time in 2021. Today, the average American home sells above its asking price.