Home prices in the United States are up a record 17 percent over last year, a surprising statistic considering a once-in-a-century pandemic and near-record levels of unemployment throughout 2020.
Houses are selling like hotcakes in Illinois, and sellers have no shortage of buyers willing to pay tens of thousands of dollars above the asking price. But will that uptick in home values continue?
With memories of the 2008 housing market crash in the not so distant past, many are wondering if we’re “in a bubble” and destined for a similar decline. If you’re one of those people, fear not: Although the drastic rise in home prices is “worrisome,” economists and attorneys at Adam Diamond Law say a crash is not likely to happen anytime soon.
What’s driving the housing market boom?
For millions of service industry workers and other lower income earners in Illinois and elsewhere, the pandemic was nothing short of an economic disaster. But that wasn’t the case for a lot of middle- and upper-income Americans who saw their finances improve.
So what led to the sudden demand for homes?
- The federal government sent multiple stimulus checks to households meeting certain income thresholds, and plenty of those checks landed in bank accounts of Illinois residents who were already financially secure. This gave a lot of buyers the boost they needed for down payments and financing.
- Mortgage rates were extremely low in 2020, another factor that propelled millennials and other first-time home buyers to take the plunge.
- White-collar workers were faced with an immediate need for more space thanks to work-from-home policies that continue for millions of Americans more than 13 months after the pandemic began. Remote employees who quickly tired of working from their dining table or sofa saw the need for a home office. This created a new group of homebuyers that may not have entered the market pre-pandemic. Also, people who already owned homes before the pandemic suddenly saw the need for a bigger place.
- Fewer homes on the market: With construction down because of lockdowns and COVID-19 restrictions – and the demand for homes way up – it created a housing shortage that left 40 percent fewer homes on the market.
How is this boom different from the swing of 2006?
Although the housing market is and always has been a volatile place, experts say this “boom” seen in Illinois and across the nation is vastly different from the swing that led to the 2008 crash and subsequent Great Recession:
- The current boom appears to be a direct response to an actual demand for homes, as opposed to “Wall Street firms looking to get any warm body they can find into a mortgage,” Daniel Kurt notes.
- Mortgage lending standards have risen substantially after some 9 million people lost their homes in 2008. Before the big crash, subprime mortgages – given to people with lower credit ratings in exchange for a higher interest rate – were handed out like candy. That’s not the case today.
- Pandemic forbearance: Lenders across the country have put forbearance programs in place through the duration of the pandemic, allowing 2.6 million homeowners to postpone payments without severe penalties.
Economists and market analysts agree that what we’re seeing could certainly lead to an affordability problem, but they don’t believe it will lead to a big crash.
Contact an Illinois real estate attorney today
Do you have questions about selling your home? Are you wondering if now is the time to take the plunge? Adam Diamond Law has more than 15 years of experience helping clients with real estate transactions. Contact them today for a free consultation.