Over the course of the COVID-19 pandemic, the real estate market boomed. Home prices across the United States rose to unprecedented levels in some parts of the country. This boom was primarily driven by low housing inventory and even lower mortgage rates. It was a perfect storm that resulted in a real estate bubble across the country, as it became customary for houses to receive multiple offers and sell well-over their asking prices. Buying a home became a fierce battle, pitting multiple buyers against each other in a bidding war where only one could come out on top. I believe that the real estate market has been forever changed by the pandemic, and going forward, buyers will be navigating a new frontier.
It was truly extraordinary to watch the prices of homes rise exponentially during the pandemic. It was definitely responsible for sparking my interest in real estate. I was in Tampa, Florida at the time, arguably the ground zero of this real estate boom. Tampa was projected to be named the number one real estate market in the United States by Zillow in 2022. Seeing houses in my neighborhood sell for record prices within hours of being posted online truly amazed me. During the pandemic’s boom, I pursued an internship at a real estate brokerage in Florida, which furthered my interest in the field.
However, with the start of 2023, this real estate boom has come to a screeching halt. Post-COVID-19, the American economy has been dealing with a number of issues, the most pervasive of which is persistent inflation. Inflation has negatively impacted the lives of Americans across the country, causing the cost of living to rise exponentially. In order to slow down this inflation, the U.S. Federal Reserve has been systematically raising interest rates. These raised rates have worked to slow inflation but have also slowed down the real estate market.
With the rise of mortgage rates to a staggering average of 6.5 percent today, home buyers are less eager to pull the trigger on that new house they’ve been eyeing. Over the first few months of 2023, there has been a noticeable slowdown in home sales in real estate markets around the country. Gone are the early days of the pandemic, when homes sold mere hours after being listed. Houses are sitting on the market longer and not selling unless the price is right.
This drop in homebuyer demand has also been accompanied by an increase in inventory in the market. According to HousingWire, a real estate news site, home inventory is up nearly 55 percent in December since previous times that year. The demand for housing was bound to drop off — it was just a matter of time before the COVID-19 era bubble finally burst.
Many people have warned that a 2008-level real estate crash is imminent, but I think this is an exaggeration. I do not believe that the real estate market will collapse. However, I do believe that we have passed the peak and are now on a downward trend. Within the next year, I think we will continue to see a slowdown in the housing market. As inventory continues to rise and fewer people can afford loans to purchase homes due to the high interest rate, prices will continue to fall back toward pre-COVID-19 levels. We are definitely entering a buyer’s market, and those with the cash necessary to purchase homes without mortgages stand to benefit.
A buyer’s market is bad for sellers but an excellent opportunity for real estate investment. The real estate market has its ups and downs, and, like the stock market, it’s smart to buy during the dips. As prices fall, you will be able to pick up properties at better prices with much greater upside potential. The positive side of a real estate downturn is that it can level the playing field and provide a perfect opportunity for investors and first-time home buyers. Younger and lower-income Americans are often renters and don’t have the opportunity or means to purchase a home. For many American families, real estate is the main way that they can invest and build wealth. In my view, a market downturn will offer many people the chance to buy a home and start building equity. The only caveat to this idea is the high interest rates, but hopefully the Federal Reserve will begin to lower them in the near future.
Nobody knows what the future holds, but I believe that many great opportunities lie ahead for the real estate market. 2023 marked the end of the COVID-19 real estate boom and the beginning of a real estate downturn. For many Americans, a prime opportunity to invest in real estate may be just around the corner.
Michael Toscano is a sophomore majoring in business administration.