Unprecedented Housing Market Raging On

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June’s housing market remains virtually unchanged. In Tucson, the median home price is currently at $257,600, up 17% year-to-year. Increasingly fewer homes are listed for sale, mortgage rates are still historically low, making buyers more eager to buy, and new home construction is rising. The real question is, for how long? What will happen when the market shifts the opposite way? I’ve been working on possible outcomes from a shift and will come up with an answer pretty soon.

When Is Covid Leaving Us?

According to the CDC, about 46% of the U.S. population has so far been vaccinated (falling short of the President’s goal), and new cases, on average, have fallen. But people are questioning when can a pandemic be considered done or ended? Or this pandemic, in particular? Well, there are two factors to it. First, a pandemic is intercontinental and doesn’t target a specific group of people or place, so it will be declared completely over when controlled globally, not just in the U.S. or in a specific continent or country. Second, new variants have been identified and can restart the pandemic or create a new one (unlikely to happen, but still possible). But even then, the advancements in medicine and technology, plus the new social conduct towards hygiene and social distancing, have made the human race largely able to control a pandemic in a shorter term than it took to control the original Covid-19. It’s almost impossible to predict when it’ll be completely gone, but we are making good progress towards it.

What About The Economy?

We talked about the pandemic from a social and bureaucratic perspective, but what about financially and economically? Well, the economy is waking up in the U.S., although its dynamics are completely different than from before the pandemic. Let’s talk about it from two perspectives: from the consumer standpoint and the business standpoint.

From the consumer standpoint, the economy has never been better. People generally have never had more money in their pockets than what they have today and are therefore spending more money than ever. You’ve seen people going on vacation more often, eating out more often, buying homes, and buying increasingly more expensive unnecessary things. Businesses are competing for employees in a hard labor market and paying employees more to hire or even keep them, putting even more money into consumers’ pockets. Things look great!

But let’s look at it from the business standpoint. Since the pandemic started, businesses have struggled to keep operating (not all of them, of course, but generally), prompting the government to pump money into the economy through stimulus payments and unemployment assistance, which in turn, as soon as businesses started reopening, created a higher demand for products and services, which in turn created shortages thanks to fragmented post-pandemic supply lines. Businesses’ costs have gone up both in supplies and labor. Since fewer people are in the workforce than before (thanks to government assistance and the pandemic), businesses have to pay more wages to compete for the decreased workforce. Most are being hit with unemployment tax raises. Gather all those factors, and you are looking at much smaller profit margins, even with higher revenues.

Yes, the stock market and the housing market have never been higher, but the stock market is largely based on how people think businesses will succeed or not, not on the business’s actual performance. It is mostly speculative and can be manipulated. And the housing market is growing at an unsustainable rate which the market always finds a way to balance. From a business standpoint, it cannot stay the same. The economy always finds a way to balance, and when it does, it probably won’t be pretty, but it will be necessary. Much better if the government takes off its grip from the country’s finances.