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The second most talked about topic of 2020 and 2021 next to Covid 19 wasn’t the election or a musician’s shoes. What everyone is talking about is less controversial but can have a major impact on your future. Everyone has been watching the housing market bubble. It has been a ridiculous wave of changes, ups and downs as well as turbulent. 

The Ripples Of The Housing Market Bubble & Impact On The Economy

The housing market has largely influenced the construct industry as a whole, the stock market on multiple levels, interest rates and banking, buyers, sellers and insurance on homes. Houses are now able to sell more easily in flood zones, but the NFIP is reviewing flood zones and flood policies at the moment so a lot of new home buyers might find they should have learned more about flood insurance

In this article we aren’t looking at flood insurance policies, but the impact of the housing market and how that has played a large role in home insurance as well as a wide variety of financial institutions and factors for businesses and home buyers/owners. Due to Covid-19 (the first and largest domino to fall in this fluctuating market) many of these inferences and predictions are caused by much more than a simple housing market boom.

What is presented in this article is the perspective of what we have seen from the insurance agency’s perspective. Working with real estate agents, contractors and construction businesses as well as landlords and lumber mills there has been a huge wave through that market. That wave, while chaotic has resulted in a variety of results.

The Housing Market’s Impact On Home Buyers

Home buyers and investors are split within the housing market. There is a major rush in people trying to purchase land or properties that become available. This results in increased costs and a decrease in the number of homes available. While the 2021 spring expected a large number of homes to flood into the market it has not resulted in less buying or a stall in the market. 

From my personal experience as a home buyer presently looking to purchase my first home I have found it difficult to commit to paying a large sum of money for a home I do not believe is worth their asking price. For context we are located in Central Pennsylvania looking at homes ranging from town houses to homes in the countryside having up to 3 acres of land. 

In January I viewed a home in the town of Schuylkill Haven Pennsylvania that was asking about $65k. This home was attached to another and had holes that allowed me to see all four floors  from the main floor of home. In the attic I could see daylight where the roof and chimney should have met and been sealed. The wall behind the chimney had developed mold from the constant exposure to elements. This home and small lot (the yard was about 15 foot by 15 foot) was not worth $65k but $20k. The repairs (with the high cost of lumber) would be quite expensive.

Purchasing the PA home would have resulted in a long term financial loss making it a poor long term investment. Situations like this are resulting in some home buyers from refraining from purchasing a house. While interest rates might be great in allowing people to buy, the purchase still needs to be a quality investment. 

The housing market has impacted buyers differently. Some are more willing to make a purchase due to the lower interest rates, while others are refraining from making a purchase, holding out until the price of homes decrease, which does not seem likely in the near future.

The Housing Market’s Impact On Sellers

The home mentioned above had been sitting abandoned for about 2 years, but the realtor saw the house buying rush and how the market was lacking homes to buy. You can’t sell homes, unless you have homes to sell. This has led to a large number of abandoned or damaged homes resurfacing on the market while also being marked up in price. This makes the housing market risky because you could be purchasing a lemon if you aren’t careful. Banks and real estate companies have the opportunity to sell their discount material at a higher price.

Pretend you own a retail store, let’s pretend you sell clothing. All of a sudden a wave of people go through your store and purchase all of your clothing. You start to increase prices and still all of the clothing is purchased. There is a delay in new clothing coming to your store so you go into the attic and find last years clothes. Placing them on the shelves, you up mark the price because you need to keep your shelves stocked to stay in business. Still those old clothes sell.

This is what is happening within the seller’s market. Along with that, the new homes being built are costing more due to the housing market’s impact on the construction and lumber industry. So as the new homes get listed, they are more expensive because the construction cost is more expensive. This has the potential to make the housing market remain as it is for a longer time.

The Housing Markets Impact On Insurance

With all of the changes in the housing market there are new houses being built and homes being purchased regularly. This requires for new audits and premiums to be written continually. Contractors are needing builders risk insurance on new projects and as homes are going from vacant to full, a variety of shifts are happening within the insurance industry. When the waves from the housing market settles so will the insurance rates.

Specific Impact And Results of The Housing Market On Insurance

  • Home Insurance: Since the value of homes are higher, the coverage needed to protect that home’s value also increases. While this might not be seen initially, it can be reflected as a home’s value changes with the market.
  • Contractors and Construction Insurance: Do to building materials drastically increasing in price and value insurance coverage needs to increase in value to correctly protect the value of materials that could be lost.
  • Renters Insurance: Renters have also been affected by the housing market. Due to the value of housing increasing so does the value of apartments. While specific renters might not see an increase in renters insurance, landlords could see an increase in the cost of the property insurance since that property has a higher market value. This can in turn increase the rent for apartments.

While it may seem like this forecast insurance costs increasing, it is technically only increasing with the market. As the market value and prices increase so does the protection of the materials and property. Think of it like owning a restaurant. If the cost of eggs triple, the cost of meals with eggs will increase at a relative rate.

The Housing Market’s Impact On The Construction Market & Lumber

Construction companies have found them in an interesting position due to the housing market boom. The need for their work has increased which is great. This has led to more projects and sales, but an adverse effect of this surge of construction work is a shortage of lumber that resulted in an increase in lumber costs. The lumber cost fluctuations has the ability to affect not only retail and the market as a whole, but it has also led to the increase in home value.

When the housing market wave hit the lumber industry that wave grew and tripled the range of impact that the housing market has had. In all of this the construction industry has a need for construction workers while there seems to be a shortage of people applying for jobs. This can then cause a push and pull within the market, along with all of the other pushes and pulls that just continues the wave of financial changes.

Financially it is beneficial if your business can be ahead of this housing market wave and prepared for it by having the materials and supplies needed as well as the employees available. While the state of the world made that almost impossible, it then resulted in some construction businesses being able to “get ahead” by not following certain Covid-19 policies. This strain on the market, employees and employers is still continuing.

Housing Market’s Impact On The Stock Market’s Impact On Jobs

Due to the market historically (early 2000s) being driven by the housing market and that resulted in an economic crash/impact that had irreparable damages, regulations were put into place to keep it from being the primary driver of the economy. This allowed for a variety of businesses to grow and essentially a safer economic structure. The housing market has impacted the economy, but not on the same level it has in the past. The stock market is being impacted greatly by a variety of factors like low information investors, the election and redirected spending caused by stimulus checks, the cost of lumber, the lower cost of taking out a loan. The market is essentially a pot of water that started boiling because of Covid-19 and the housing market is one of the many spoons that is stirring the whole thing up.

Where Is The Housing Market Heading?

This is the golden question. The most sought after information in the market. And from an insurance company’s perspective we have no idea! What we do know is that we will provide home insurance no matter if the market is good or bad. Whether your home is a new construction or you start a new business. Contact us at Strickler Insurance for your personal insurance or business insurance.