3 reasons for the strength in the housing market

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Housing has been one of the strongest areas of the economic recovery following the shock from the coronavirus. Michelle Meyer, head of U.S. Economics for BofA Global Research, looks at some of the key factors behind this trend.

3 Reasons for the Strength in the Housing Market

3 Reasons for the Strength in the Housing Market

With
Michelle Meyer
Head of U.S. Economics,
BofA Global Research
Please see important information at the end of this program. Recorded on 10/09/2020.
[ON SCREEN TEXT]
Michelle Meyer
Head of U.S. Economics
BofA Global Research
The housing market recovery from the COVID pandemic shock has been exceptional, exceeding expectations. And it's a natural question of why? How come the housing market has been able to rebound so impressively, while other parts of the economy are still lagging and still facing quite a lot of challenges?
And we boil it down to a few simple reasons.
[ON SCREEN TEXT]
What's Been Helping the Housing Market
  • Mortgage rates are extremely low
The first and foremost is that mortgage rates are extremely low right now. And that is by design of the Federal Reserve's policy. Remember, the Federal Reserve has been aggressive at fighting this recession, cutting interest rates, actively expanding their balance sheet and promising to remain accommodative for the foreseeable future.
So this incredible low level of interest rates supports affordability and helps to create an environment where people can make that decision to move from the renting market into the home ownership market.
Another very significant factor we think owes specifically to the pandemic, to this nature of the shock.
[ON SCREEN TEXT]
What's Been Helping the Housing Market
  • Mortgage rates are extremely low
  • More people are working virtually
As a result of COVID, a lot more people are working virtually. People are not necessarily as inclined to live in dense areas. And if you simply follow the housing activity by zip code, you do see this phenomenon play out where the really highly dense areas aren't seeing the same amount of housing activity as those that are a little bit less dense in the surrounding markets.
And then I would say, when you think about the health of the housing market heading into this crisis, it was very solid.
[ON SCREEN TEXT]
What's Been Helping the Housing Market
  • Mortgage rates are extremely low
  • More people are working virtually
  • Housing market was healthy heading into the recession
So the housing market was able to withstand the initial shock from the recession and that's been a real supporting factor for the broader recovery.
The fact that people are going back out purchasing homes, builders are able to build new homes. That's been a source of job creation. It's been a source of consumer spending. And it's also been a support for household balance sheets, because home prices have been rising and that's healing and helping households in terms of their wealth as well.
And that could be one of the reasons that the housing market has done better. With every home sold, there are expenses associated with that, there's dollars that are put into the economy, and that helps create a positive feedback loop.
So just to summarize: the housing market, it has been one of the strongest parts of the economic recovery. And we think that owes, in part, to low interest rates. It owes to the nature of the shock where people are looking to relocate, and owes to the fact that the housing market was pretty healthy heading into this crisis.
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Information is as of 10/09/2020.

Opinions are those of the author(s), as of the date of this recording and are subject to change.

Investing involves risk including possible loss of principal.

Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates, and risks related to renting properties, such as rental defaults.

Banking, mortgage and home equity products offered by Bank of America, N.A., and affiliated banks, Members FDIC and wholly owned subsidiaries of Bank of America Corporation. Equal Housing Lender. Credit and collateral are subject to approval. Terms and conditions apply. This is not a commitment to lend. Programs, rates, terms and conditions are subject to change without notice.

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