By David DiMolfetta

Prospective buyers are sweeping up U.S. homes in mere weeks as the housing market adapts to a post-COVID world.

The boom goes back almost a year as demand for homes soared amid initial lockdown conditions from lower mortgage rates and increased demand for more suitable work-from-home environments.

The demand jump in the housing market is also met with a vast supply shortage. The increased need for people to stay home amid the pandemic and insufficient housing construction has dried up the supply of homes and sent prices skyrocketing.

According to the latest data from real estate brokerage Redfin, the median sales price of a home in the U.S. is about $337,000, up 14.4% from a year ago. Detroit, Cleveland, and Salt Lake City are among the top three American cities seeing the largest growth in prices.

Some 484,000 homes have been listed for the market, down nearly 18% from the prior-year period. Homes stay on the market for about a month, yet just 7% of homes have seen price drops.

Americans saved record amounts of money throughout the pandemic as employers turn to flexible hybrid work-from-home policies, decreasing the need for some Americans in the workforce to commute into cities. For home builders, laborers can only work so fast to fulfill the market’s needs, so prices of building services have been pushed upward to further fulfill market demand. Such factors have also contributed to this expensive home surge.

“The builders have been whining forever about people not having down payments,” John Burns, a homebuilding consultant, told Bloomberg News on April 9. “What’s different about this spring is how much cash people have.”

Some have questioned the risk of a housing bubble similar to the 2000s-era subprime mortgage crisis occurring amid the current housing boom. However, in an April 12 note, First Trust analysts said that the supply shortage and more rational buyer behavior exhibited now compared to the previous decade would not allow a 2008-like crisis to manifest.

“The recent price surge is based on fundamentals, and the housing market should continue to boom,” it said. In the past 20 years, builders have only started construction on some 1.26 million homes per year and haven’t started more than 1.5 million homes in a calendar year since 2006, the note later added.

As houses fly off the shelves, the boom has arguably benefitted current sellers and homeowners but has burdened first-time buyers and others with less income. For the latter, they also face the incumbrance of increased mortgage rates. The average rate on a 30-year fixed-rate mortgage hit a high of 3.17% at the end of March, the highest level since last June, according to Freddie Mac data published by the St. Louis Fed. As of April 8, the rate sits at 3.13%.

In March of last year, the 30-year FRM averaged 3.29%. Freddie Mac Chief Economist Sam Khater said that while the figure is on par with a year ago, and the government-sponsored mortgage enterprise expects sales to be strong for the spring.

In a prepared release on April 14, Freddie Mac forecasted the 30-year rate to be 3.2% in 2021 and 3.7% in 2022. Khater, in the release, said that housing market conditions would continue to remain “generally favorable” but that higher mortgage rates will cause loan origination to decline to $3.5 trillion for 2021.

“Other important obstacles to consider include high home prices and low housing supply that will certainly influence the trajectory of purchase activity specifically,” Khater said.