Single Family Home Values Appreciate Amid Pandemic: Will it Last?
Commercial real estate has been hit hard by the COVID-19 pandemic. Even before the virus, economists pointed to telltale warning signs of a looming U.S. recession: declining GDP growth; historically low levels of unemployment; a rising Economic Policy Uncertainty Index; and an inverting yield curve. Single family housing value remains a relative bright spot for real estate in the Washington metro area. Despite a troubled economy, inventory and interest rates are low, which has allowed for continued appreciation of homes. Demand may not be as high as it was a year prior, but with such limited inventory and heightened competition, it is still a seller’s market.
Washington-area home prices were already at historic highs in 2019. The announcement of Amazon opening a second headquarters in Arlington, Virginia elevated single-family home values, especially within the Capital Beltway of Northern Virginia. With further reduced interest rates, many prospective buyers are still willing to purchase homes despite present economic uncertainty. The MLS reported that as of June 2020, median home prices in the Washington metro area were 3.1% higher than a year prior. Prince George’s County and Alexandria median home values were up nearly 11%.
Through the first half of this year, Federal policy helped to stabilize housing markets amid the pandemic. As mentioned, current housing values are rising due to limited inventory and low interest rates. None of this would be possible if the government failed to provide additional unemployment benefits and mortgage forbearances to those effected by the pandemic. Without continued Federal aid, foreclosures will rise leading to hyper-supply in the single-family housing market. Home values will decrease as supply outpaces demand. Unemployment benefits rewarded through the CARES Act ended on July 31st, while mortgage forbearance options are set to expire next year. As a result, economists are predicting a drop in single-family home prices nationally beginning in Summer 2021. There will likely be less of a price impact in Washington due to the region’s economic structure – it is the seat of the Federal government and tends to fare better than other parts of the country during a recession.