On March 15, 2020, the United States Federal Reserve Board cut interest rates dramatically as an emergency response to the COVID-19 crisis. The Federal Reserve later elected to hold these low rates, hoping that doing so would aid the economic recovery as the pandemic went on.
Due to this cut in interest rates, in addition to the federal government subsidizing unemployment payments, sending stimulus checks to citizens based on their income, and providing loans to businesses, the United States did not see the economic catastrophe during 2020 that many predicted it would.
In the meantime, many states enacted stay-at-home orders during the pandemic. Prior to the pandemic, migration rates in the United States had been in consistent decline, and between March 2019 and March 2020 was at a 100-year low. According to the Census Bureau’s Current Population Survey Annual Social and Economic Supplement, which has traced the number of Americans relocating to different locations since 1947, approximately one-fifth of Americans changed residences annually between the last 1940’sand 1960’s. Following this period, migration rates in America declined. By the early 2000’s, only about 13% of the population moved each year. After the great recession, this number continued to decrease, ending up at only around 9% in 2020.
Once the pandemic hit, however, that drop in Americans relocating began to change. Many individuals living in cities were forced to shelter-in-place in small, cramped apartments. Some found themselves isolated from family and friends due to where they live and the restrictions on socializing. Many employers transitioned to a work-from-home model as well, giving employees more flexibility in terms of distance between their home and their office. While the statistics have yet to be finalized and analyzed, there are indications of somewhat of an exodus out of larger cities and to suburban and rural areas of the United States.
Early statistics indicate that as many as one in five Americans changed their residence due to the pandemic or knew someone who did, according to a survey from the Pew Research Center conducted in June 2020. Many of these individuals – 37% – were between the ages of 18 and 29.
The combination of the significant drop in interest rates and the number of individuals relocating during the pandemic appears to have led to an interesting trend: an increase in home purchases. Despite the economic impacts of the pandemic, millions of Americans purchased homes in 2020. In fact, Census Bureau data indicates that the number of homeowners increased by over 2 million in 2020 from 2019 – the largest increase in homeowners since 2004, per the Pew Research Center. This was a substantial enough boom to increase the overall homeownership rate from 65.1% to 65.8%. Though this 0.7% increase may not seem substantial, for context, the largest rate increase on record was 0.9% in 1995.
Unfortunately, it appears that many of the individuals who chose to purchase homes during the pandemic have come to regret it. LendEDU, a comparison site, did a survey of 1,000 American homeowners in August 2020. Those who responded to the survey were comprised of both homeowners who purchased a home with a mortgage prior to the pandemic as well as homeowners who purchased during the pandemic.
They found that 72% of respondents who became homeowners during the pandemic decided to purchase a home because of the pandemic, mainly due to the low interest rates that came with the pandemic. Specifically, 54% of respondents reported that they decided to purchase a home after March 2020 to take advantage of low interest rates, 15% reported that they wanted to move out of a location with higher COVID-19 rates, and an additional 3% responded that the pandemic played a role in their becoming a homeowner for other reasons.
The survey also found, however, that most of these new homeowners now regret purchasing a home. Of the respondents who decided to purchase a home and take out a mortgage during the pandemic, 30% reported that they believe they should have waited to purchase a home for financial reasons. Another 10% stated they believe they should have waited for social/life reasons, and 7% reported they were simply not prepared for homeownership. Another 8% reported they regretted becoming a homeowner during the pandemic for other reasons. On the other hand, 43% of respondents reported they believed they made the right decision, with 3% of respondents unsure or declining to answer. This means that, of the respondents surveyed who purchased a home during the pandemic, a combined 55% of respondents reported they regretted the decision.
Why the high rates of regret? There are many reasons. The first is financial struggles. LendEDU asked all of their survey respondents (both new and more seasoned homeowners) if they have struggled to make monthly mortgage payments, and 41% of those surveyed said yes. The most common reasons cited for this financial difficulty were being laid off and “general financial struggles/recession brought on by the coronavirus pandemic.”
For homeowners surveyed who purchased a home during the pandemic, the survey found that 18% of them had been granted a pandemic mortgage forbearance, and another 25% had agreed to a reduced monthly mortgage payment. While these mortgage forbearance or reduced payments were not supposed to impact an individual’s credit score, LendEDU found that there was a massive increase in the number of credit reporting complaints during the pandemic, citing to improper negative credit marks due to these agreements with lenders.
Another factor that plays into homeownership regret is the fact that, while it may seem counterintuitive, it is not an uncommon phenomenon. A survey by Porch in December 2019 found that 44% of Americans had regrets about their home, and another survey from Bankrate in February 2019 found that 63% of millennial homeowners had regrets about buying a home.
Additionally, individuals may have rushed into home-buying due to low interest rates and stimulus savings without considering all of the other facets of homeownership. According to American Family Insurance, homeowners should generally budget about one percent of their home purchase price for home repairs yearly. This means that an individual who owns a $200,000 home should expect to spend about $2,000 a year on home maintenance. These costs obviously increase for large purchases – for example, the average replacement cost for HVAC is, per American Family, between $3,000 and $6,000, and the average replacement cost for a water heater goes up to $1,400. First-time homebuyers who rushed into homeownership to take advantage of low interest rates may not have been prepared for these repair and maintenance costs.
Finally, as has been joked about online and on Saturday Night Live, there has been what some are calling the “Zillow phenomenon.” Individuals, particularly millennials, have taken to “browsing” Zillow listings as sort of a past-time. There are even popular pages on Instagram with millions of followers that simply re-post Zillow listings.
What does all of this mean moving forward? According to Rocket Mortgage, the median home sales price will likely increase, due in large part to there simply being less homes available on the market. Despite the pandemic and everything that came with it, they also caution that while it does not look like there will be a housing market crash, it is always possible.