It's no secret that COVID-19 has done a number on the U.S. economy. A record number of workers have filed for unemployment, and with the outbreak surging in some parts of the country, it's clear that it could be quite a while before we bust out of our current rut.
But despite the ongoing recession, home sellers are doing quite well in today's real estate market. In fact, U.S. home prices rose 4.9% from May 2019 to May 2020, according to the Federal Housing Finance Agency (FHFA).
Meanwhile, the National Association of Realtors has housing data through June 2020, and it found that home prices climbed 3.5% from June 2019. Either way, rising home prices could be a challenge for real estate investors who are eager to get in the game. And if they keep climbing, some investors may ultimately get priced out.
What's driving home prices upward?
A big reason why homes have been selling at such a premium boils down to a lack of inventory. The COVID-19 pandemic has made the once simple act of showing a house a health concern. As such, many sellers are holding off on listing their homes to avoid dealing with the logistical nightmare of accommodating prospective buyers.
And with less supply on the housing front, there's, therefore, more demand -- which explains why sellers can command higher prices for their homes today than they could a year ago, despite the fact that the economy was much stronger last spring.
Where does that leave real estate investors? Those in the business of flipping houses may have a harder time coming out ahead financially if they're forced to pay top dollar for the homes they buy. Similarly, those purchasing income properties will really need to focus on markets with strong demand so they're able to command enough rent to cover their higher mortgage costs.
In fact, those who invest in residential real estate may want to sit tight for the year and hold off on adding properties to their portfolios until housing inventory picks back up. Otherwise, they may get stuck paying top dollar.
Sellers, meanwhile, have a golden opportunity to make money right now. With mortgage rates being unbelievably low, many buyers are rushing to purchase homes. The result? A surge in bidding wars, which can work to sellers' benefit.
Are there still deals to be had?
Some parts of the country have seen higher spikes in home prices than others. The FHFA reports that between May 2019 and May 2020, home prices rose the least in New England as well as the country's Middle Atlantic region. But make no mistake about it: Home prices are up across the board, and anyone looking to snag a deal right now is apt to have a hard time. As such, it could pay for real estate investors to think about sitting the rest of 2020 out -- especially those looking to buy properties on a limited budget.