2020 turned the real estate market as we know it on its head. While the fundamental rules of the business stayed the same, there’s no denying that the housing market reacted unpredictably. That’s not surprising in light of the uncharted territory of a global pandemic.

Four years later, where are we? While we’re undoubtedly feeling the echoes of the real estate market of yesteryear, things are changing. Here’s how…and what it means for real estate investors!

But first, let’s go over a few defining characteristics of the pandemic-era real estate market. Call it a refresher!

• Surge in Demand – The pandemic created intense housing demand driven by low mortgage interest rates and a desire for more space.
• Low Inventory – The supply of homes for sale was minimal, creating a competitive market. The disruption of supply chains and halted work set the construction sector back.
• Rising Home Prices – Home prices surged nationwide due to this high demand and low inventory. Many markets saw double-digit price increases year-over-year.
• Urban to Suburban Migration – There seemed to be a mass exodus from populated urban areas to suburban or rural areas. People sought more space and perceived safety. Naturally, demand for housing in these regions exploded!
• Remote Work Flexibility – With remote work becoming more common, many Americans took advantage of the flexibility by moving to locations with lower costs or higher quality of life. They prioritized home offices and outdoor space.
• Renovation and Remodeling Boom – With people spending more time at home and receiving stimulus checks, there was a significant increase in home improvement and remodeling projects. This trend grew as home prices rose.
• Record Low Interest Rates – The Federal Reserve’s policies kept mortgage rates at historically low levels, making borrowing more affordable. This also contributed to rising home prices.
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Further Reading: This is How the Real Estate Market Got Where It Is Today

While some of these trends continue, albeit on a smaller scale, many are shifting in another direction. These three are the most notable in our minds.

3 Ways the Housing Market is Changing

#1 – Inventory is growing.

A look at FRED economic data demonstrates where we are now regarding housing inventory. The typical pattern is to see inventory crest in the last summer/early fall, then drop off into the winter and early spring. This aligns with the typical homebuying seasons. In 2020, however, inventory took a nosedive. Active listings dropped from 951,675 in January 2020 to the lowest point of 346,511 in February 2022. Though we’re not quite back to pre-pandemic active home listings, we are back up to 787,722 as of May 2024. The natural ebb and flow seems to be returning.

Investor Lesson

This trend back to inventory stability means that investors should have an easier time finding properties and avoiding bidding wars. Though demand has dropped thanks to high prices and interest rates, inventory is not yet at an excessive point. In fact, we’re still pretty short of where the industry should be. That said, more options mean more negotiating power. Don’t feel you can’t walk away from a deal – it’s not your only option.

#2 – Prices are leveling out.

Two years ago, you could expect homes to sell on average for 2% above the asking price. Last year, you would pay the asking price. As of June 2024, buyers purchased properties for 0.3% below list price. It would seem that mortgage rates – still hovering around 7% – are finally helping cool the market. There’s less demand right now. Buyers aren’t able to sell for top dollar regardless of condition. Sellers are more likely to slash prices, too.

Investor Lesson

We’re moving out of the intense seller’s market of the pandemic. Buyers have more power, even if it seems minute against record-high real estate prices. For the real estate investor, this means two things. One, hold what you have. Two, open yourself up to acquisition opportunities. Even if you don’t intend to buy now, begin looking into markets, properties, and financing to jump on your chance when the moment is right.

#3 – Homebuyers are more prudent.

Homebuyers have long operated under the rule that bigger is better. This was especially true at the height of the pandemic when Americans sought more space for their personal refuges. But even before that, homebuyers seemed willing to pay more for increased square footage. Today, though, that’s changing. Because housing has grown so unaffordable, we’re seeing an increased willingness to compromise on square footage for affordability.

Investor Lesson

Homes are expensive. Builders are starting to prioritize smaller houses because they recognize price trends and which demographic has the most pent-up demand. (Hint, it’s those who have felt pushed out by high prices!) You can uniquely position yourself and your properties to attract long-term residents struggling to afford a comparable home.

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