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One of the dominant economic stories since the COVID-19 pandemic began has been the fiercely competitive housing market. The median sales price of a home in the U.S. topped $400,000 for the first time in 2021 amid aggressive buyer offers and bidding wars in markets all across the country.
The current challenges of the housing market have come from a potent combination of supply- and demand-side factors. The U.S. has underbuilt housing supply for years, with mortgage lender Freddie Mac estimating a shortage of 3.8 million housing units as of 2020. The COVID-19 pandemic has brought additional struggles, as supply chain constraints and labor shortages have raised costs and made it difficult for builders to keep up. On the demand side, the Millennial generation are in a peak period for buying homes, and a years-long run of low mortgage interest rates has attracted many buyers into the market. More recently, the COVID-19 pandemic brought wage increases for many professions and greater shifts to remote work that raised demand for larger homes.
The result has been a hypercompetitive housing market that has produced a dramatic spike in home prices since the beginning of 2020. Before the pandemic began, the median sales price of a U.S. home was $329,000. By the third quarter of 2021, the median sales price soared to a peak of $411,200, before declining slightly to $408,100 in the last few months of 2021. With more than half of homes now selling for above $400,000, fewer options are available for lower-income or first-time buyers, and current homeowners looking to upgrade to larger or nicer homes are having to pay a higher price to do so.