2020 may be over, but we’ll be thinking about how the pandemic shaped our housing market for years to come. Here at Mainstreet, we invited Dr. Ted C. Jones, Chief Economist and Senior Vice President at Stewart Title, to join us in reflecting on the past year and considering what it means for the economic outlook in 2021.
Couldn’t make the event? No problem. These are three key takeaways from his talk, “The 3 R’s of Real Estate and the Economy: Reinvent, Recharge, Reignite.”
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Thanks to the pandemic, the intrinsic value of housing has risen
Given that the last recession was so closely tied to housing value, it may be a surprise for some people to see that housing prices have gone up during the pandemic. However, the rise in value makes perfect sense when considered another way: during a time when most people are spending more time at home than ever, every bit of space and every amenity is precious.
“Housing’s hot, because it has the highest intrinsic value of our lifetimes,” Jones said. “The more time we spend in our homes, the more it impacts the quality of our lifestyle.”
Even as people are vaccinated and able to return to more activities outside the home, the pandemic will doubtless continue to impact home value and home price throughout Northern Illinois.
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Home value is rising — but low interest rates are keeping homes affordable
Despite the rising median sale price of homes in the Chicago area, housing affordability is in line with where it has been in recent years. As Jones also laid out in his blog post “Housing Sales Buoyed by Record-Low Interest Rates,” affordability is measured by looking at the percentage of household median income that is required to pay monthly mortgage payments (both principal and interest).
In 2020, this figure was 17.6% nationally. As Jones writes, “In the prior 10-years, five of the years were more and five were less, placing 2020 affordability right in the middle.”
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This market is not a bubble - just look at the housing availability in Chicagoland
According to Jones, home prices are up 12.5% and home sales up 13.3% in the past 12 months. He was adamant that this is not a bubble. A normal, balanced market has 1.25 to 1.5 new jobs per new housing unit, based on Jones’ findings. In Chicago, there are 3.10 jobs per new housing unit.
“You have systematically underbuilt,” Jones said of the Chicago MSA. “You have pent-up pressure on housing prices. Even as interest rates rise in your market, I’m not worried about home value.”
Watch the entire Economic Outlook video to learn more about the economic outlook for 2021 and view the entire event,