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COMM120- Week 7: Final Project
73
Covid-19 and the war it waged on the housing market.
COMM120: Week 7: Final Project
Ashley A. Smith
November 20, 2022
In the spring of 2022,
the housing market hit the
highest it has been in nearly fifteen
years. Although we have seen the
housing market rise this high before, there is
an additional problem that we have never
experienced- the number of existing homes on
the market has reached an all-time low. In 2021, the
percentage of existing homes sold jumped 8.5% from the previous year (The Harvard Gazette, 2022) and it has only continued to rise since then. Between the
increase in the overall housing market
and the decreasing amount of available previously owned homes, the housing market is thriving, and with that comes yet another issue- an increase in
Itroduction: Today's housing market
annual percentage rates (APR) for
home loans. As of November 2022, interest rates took their largest
dip in twenty-one years
(Miller, P, 2022).
Since December 2019, the worldwide
pandemic known as Covid-19 has brought many
hardships to all our lives. The initial panic
quickly turned to an overwhelming fear for your own
life and the lives of your loved ones. Soon after
international borders started to shut down and some places went as far as initiating a total lockdown. On top of the fear of Covid-19 itself, people found themselves isolated, anxiety struck, and feeling as though some of their basic rights had been stripped. Many people reported depression, anxiety, and overall issues with social interaction in conjunction with the pandemic. Between the pain, suffering, and loss Covid-19 has inflicted upon the world, many people are thrilled that life is finally getting back to normal. A lot of people might even
WHO Coronavirus (COVID-19) Dashboard
refer to Covid-19 as a thing of the past. However, the financial aftermath of Covid-19 still lingers
and continues to have detrimental
effects on our lives today.
You may find yourself asking,
"how does the pandemic
play into the housing
market?" Let me tell
you!
Covid-19's impact on the housing market
(World Health Organization, 2022)
Covid-19's direct role
During the Covid-19 pandemic, people needed something to do while in a lockdown state. Many people bought second homes to escape the largely populated cities they lived in, while others made renovations to their current homes. At the same time, there was a halt in the production of building new homes not only because of newly implemented lockdown laws, but contractors also ceased production of new homes because they feared that they may not have buyers. However, that was not the case. When the pandemic started to ease, homebuilders were surprised by the significant demand for new homes. Between people purchasing second homes, the mass quantity of renovations that people performed, and the exceeding demand for new homes, the supply versus demand for building supplies was excessively uneven, especially
when it came to softwood lumber.
Since the start
of the Covid-19 pandemic,
lumber prices have increased by
300% (van Kooten, 2022). There are two
primary reasons for this:
Cease of production:
Supply vs. demand:
During the pandemic,
many mills around the world
were forced to cease production.
There were many issues that arose
from these implemented lockdowns.
The first issue production mills faced was
the ability to re-hire experienced workers after the lockdowns ceased. Many employees found other means of work after the mills conducted their layoffs, resulting in the mills losing a majority of their experienced workers. This
was detrimental to the mills when they ran
into a supply versus demand issue that
no one expected, coming out of the
pandemic.
After the pandemic, the
demand for softwood lumber
had significantly increased. This was
due to the abundance of home
renovations that took place and the demand
for new houses being built. However, with the
stand-still of production for softwood lumber, the supply curve shifted greatly to the left, indicating that the supply was not meeting the demand. Between the lack of qualified employees and the limited resources, the price of lumber reached historical record-breaking prices. Essentially, there was not enough softwood lumber to meet the purchasing needs of the consumers and the mills were not able to make it fast enough to meet
those demands. At this point, softwood
lumber became a valued necessity
that was limited, resulting in a price
increase the world was not
prepared for.
Production of softwood lumber
Mountain Pine Beetle
(Invasive Species Center, n.d.)
Canada accounts for the largest
importation means of softwood lumber
into the United States (U.S.). The pandemic
affected Canada, just as it did the U.S. With a
limited number of employees, not only were
Canada's mills under-employed, but they also had
to layoff many transport drivers that would normally
haul lumber into the U.S. Being as the U.S. was behind on their own production of softwood lumber, the decrease of importation throughout the pandemic made things worse. Additionally, Canada implements restrictions on how much lumber can be exported each year due to an ongoing epidimic with the Mountain
Pine Beetle, which has attacked half the total
volume of commercial lodgepole pine since the
1990s (McDaniel, V., 2022). With these restrictions
in place, Canada cannot compensate for the
lack of lumber exported during the
pandemic, resulting in a further
loss for the supply of softwood
lumber in the U.S.
Importing issues
Mountain Pine Beetle
(Invasive Species Center, n.d.)
Now for the question everyone has been
asking: When will the housing market drop?
It's followed with the sad reality, which is nobody
knows. In February, Zillow, the online real estate sales
platform, revised its 2022 forecast upward, predicting home
prices will surge 16 percent nationwide (Pazzanese, C., 2022).
There have been little to no indicators that the housing market is returning to what it was pre-pandemic. If anything, interest rates
are continuing to rise, indicating that there is still a larger demand
than supply or resources to build (softwood lumber). The Harvard Gazette interviewed Nori Gerardo Lietz, a teacher of real estate
private equity at Harvard Business School, and she stated that one of the things that need to change for the housing market to even out is
the building restrictions in cities. These restrictions indicate how
high or how close building structures can be in a specific area. Lietz argues that until more properties are allowed to be built in these
limited zones, there will continue to be a supply versus demand
issue.
When is the housing market projected to decrease?
Until we start to see increased production of lumber to
back-fill the demand and lower interest rates on home
loans, there will be no indications as to when the
housing market will lower.
The pandemic known as
Covid-19 has affected of our lives
in one way or another. Whether it resulted in
the loss of a loved one, issues with your own health,
or the future implications it has brought with it. Most
people think that life has returned to normal,when in
reality, there is still a long way to go. The housing
market is a prime example of this. Until we can figure out how to undo nearly two and a half years of damage, it will
continue to have a negative effect on people's lives in more or less, subtle ways. For example, you would not necessarily notice the issue with the housing market unless you
planned on purchasing or renovating a home. However,
the same issue that the housing market is facing, many other big industries are also struggling with. At one
point or another, you will likely experience the
financial aftershock of Covid-19.
So, let me ask you, is Covid-19 really a
thing of the past?
Conclusion
References:
Miller, P. (2020, October 7). 30-year mortgage rates chart. The Mortgage Reports. https://themortgagereports.com/61853/30-year-mortgage-rates-chart
Miller, P. (2020, October 7). Current 30 Year Morgage Rates-2022. Chart (slide 2). https://themortgagereports.com/61853/30-year-mortgage-rates-chart
Mountain Pine Beetle - Profile. (n.d.). Mountain Pine Beetle. Pictures (Slide 6) https://www.invasivespeciescentre.ca/invasive-species/meet-the-species/invasive-insects/mountain-pine-beetle/
(n.d). Prezi photo (slide 4). https://prezi.com/p/edit/jxfnivdwkhys/
US housing starts february and softwood lumber prices march:
2022. (2022, Mar 18). PR Newswire http://ezproxy.apus.edu/login?qurl=https%3A%2F%2Fwww.proquest.com%2Fwire-feeds%2Fus-housing-starts-february-softwood-lumber-prices%2Fdocview%2F2640239941%2Fse-2%3Faccountid%3D8289
van Kooten, G. C., & Schmitz, A. (2022). COVID-19 impacts on U.S. lumber markets. Forest Policy and Economics, 135, 102665–102665. https://doi.org/10.1016/j.forpol.2021.102665
Virginia McDaniel (2022, May 13). How the pandemic drove up the cost of wood products. US Forest Service. https://www.fs.usda.gov/features/how-pandemic-drove-cost-wood-products#:~:text=During%20the%20first%20year%20of,%2412.80%20to%20%2448.00%20per%20sheet).
“Who Coronavirus (COVID-19) WHO- Coronavirus (Covid-19) Dashboard .Chart. 2022 (slide 3), https://covid19.who.int/.
Writer, C. P. H. S. (2022, February 9). When will rocketing housing prices ease? Harvard Gazette. https://news.harvard.edu/gazette/story/2022/02/when-will-rocketing-housing-prices-ease/