The Impact of COVID on Homeownership
Human resource leaders understand the pivotal role benefit selection plays in the lives of the employees they represent. To-date, human resource departments have left homeownership assistance off their to-do list for supporting employees. But due to the pandemic, we have witnessed dramatic changes in the housing market that will have a lasting effect on employees who want to enter or upgrade.
If we go back to March 15th, 2020, the Federal Reserve made a historic move, dropping interest rates to zero and initiating a massive bond-buying program to stabilize the economy. The immediate impact? A surge in demand for homes, fueled by record-low mortgage rates averaging 2.65% for 30-year fixed loans. And this surge unveiled an unforeseen challenge: a previously unknown housing shortage.
Throughout the pandemic, housing inventory dwindled to 70% below traditional levels, igniting bidding wars, cash offers, and concessions from buyers to ensure their offer was the one being selected.
Fast forward to 2024, and the shortage persists, with an estimated 7.2 million deficit in available housing. This scarcity has inflated home prices by a staggering 36% over the past four years, driving the financial capabilities of homeownership further out of reach for many employees.
At the heart of this rapid acceleration is the mortgage rate lock effect. Existing homeowners, who typically supply the housing market with inventory have been reluctant to enter. Why? The gap between their existing rate and the available rate has created a financial disincentive to sell.
Research underscores the magnitude of this phenomenon: for every percentage point increase in an available mortgage rate from their existing rate, the likelihood of a homeowner selling decreases by 18.1%. With a vast majority of homeowners (89.0%) locked into rates below 6%, the impetus to stay put becomes clear. Yet life continues for individuals and families, who can’t wait indefinitely for market conditions to change in their favor.
Looking ahead, it's unlikely that we'll see 30-year fixed mortgage rates averaging 2.65%, nor should we anticipate the persistence of two-decade record-high mortgage rates as a result of government efforts to orchestrate a soft landing for the economy. What remains evident is that interest rates are the primary factor influencing home affordability.
Going forward, employees are going to need help in attaining their homeownership goals and we are positioned to be the go-to benefit solution for employer groups who are interested in helping their employees achieve their personal goals of owning a home.
