What Really Drove Pandemic Homebuying Was Financial Benefits

The explanations have been all lined up. During the pandemic, people and their families that were cramped in apartments while working and studying from home decided enough was enough. They needed more space. People who could now work from anywhere decided, “Why not?” And they moved to what they thought would be more pleasant surroundings.

At least, that was the story. Some research on the part of Fannie Mae suggests something quite different. What drove the flood of homebuying wasn’t the aesthetics of pandemic life, although that was something of a factor. The real driver was money.

Federal pandemic aid and big injections of liquidity by the Fed, particularly in the form of a zero-interest rate policy, fueled the moves by both first-time and upgrade buyers. Toward the end of 2021, 30-year fixed rate mortgages averaged around 3% and personal savings were heavily bolstered while credit card debt came down, which would have improved credit ratings. Median days on the market dropped from 74 in 2017 to 46 in 2021.

“We are now in a different phase of the economic and housing cycle,” the institution wrote. “From the end of 2021 through September 2022, mortgage rates increased from 3% to over 7%. This rapid rate increase contributed to the pace of total home sales declining from an annualized pace of over 7 million units in January 2022 to approximately 5 million units in October 2022. Our latest forecast doesn’t expect the annualized pace of total homes sales to exceed 5 million units again until 2024.”

Fannie Mae conducted two surveys in 2021 of recent buyers. In the first, among first-time buyers, only 29% said the pandemic had sped their purchase plans. For move-up buyers, it was only 13%. What was the driver? For 48% of buyers, it was low interest rates.

In the second survey, again it was financial benefits that drove both first-time and repeat homebuyers. That included both taking advantage of low interest rates and the belief that purchasing a house made greater financial sense than renting.

Today, the condition of cheap money no longer exists. “We currently forecast that existing home sales will remain at a relatively low level until some combination of lower home prices or lower interest rates helps reverse the deterioration in affordability that, as of this writing, has made homeownership more unaffordable than at any point in the past 20 years,” they wrote. Fannie Mae doesn’t expect the annual pace of home sales to hit 5 million again until 2024.