Buying a Home During Covid Felt Like Winning the Lottery – Here’s Why My Payments Are Lower Than My Mom’s

A Reddit user bought a home during the COVID-19 pandemic, and he’s feeling pretty good about his decision.

In fact, he described the experience as being the equivalent of winning a lottery and has expressed skepticism that those who are hoping to buy homes in the future will have the same opportunity he had. 

So, why does the poster feel that he was so lucky to purchase a home when he did? 

Affordable payments and rapidly rising prices make a COVID home purchase look pretty great

The original poster (OP) has plenty of great reasons to be happy that he purchased his home in the height of the pandemic.

For one thing, his payment is really low because of his affordable interest rate. Rates repeatedly hit new record lows during the pandemic, and, as a result, he has a 3% interest rate. He did the math and compared the percentage of his income he’s paying for his home to the percentage of income his mom paid for her home in 2000 and he discovered that, despite buying a house valued at three times what his mom’s cost in inflation-adjusted dollars, he was paying a similar percentage of his income for his house. 

As if a low rate wasn’t enough, he’s also benefited from significant appreciation on his home. While his mom’s home, purchased in 2000, is worth around five to six times what she paid for it after 25 years, his home — which is located in the same area — has already doubled in value in a much shorter time.

While he is really happy about what this means for his finances, he also worries about how fast home prices have gone up and wonders if we’re in a housing bubble.

Will the bubble burst, and will people be able to buy affordable homes in the future?

The rapid appreciation of his own property prompted the OP to ask if we were in a real estate bubble, and several other Reddit users commented that we might be. 

The median home price in January was $418,000, according to Redfin, which was up 45% from five years ago. As one Redditor pointed out, this reflects “unprecedented” appreciation in housing value.

While another poster pointed out that the state of the market is location-specific, the reality is that home prices climbed nearly everywhere over the past few years. Stubbornly high mortgage rates ironically played a role in this rapid price increase because, while today’s high rates scare off some buyers, they are also deterring a greater proportion of people with affordable loans from selling. If you own a home and have a mortgage rate of 2% or 3%, selling would mean you need to get a new loan at 6% or 7%. Chances are good you aren’t going to want to sell when you’re looking at those numbers. This reluctance to move has reduced supply, helping to drive up costs. 

Regardless of the specifics of why it happened, a 45% price surge over five years also unfortunately prices many people out of the market, especially as rates remain stubbornly high. As a result, some Redditors — and some experts — are concerned that costs rose so quickly that a market correction is inevitable. 

Will rates fall?

The OP didn’t just benefit from his home going up substantially in value. He’s also got a cheap payment because of his low rate.

Unfortunately, it is very unlikely that we’ll see rates in that 3% range any time soon, given that this was a historical low. While rates were in the high 3% range or the 4% range for most of the years following the 2008 financial crisis, historical mortgage rates tend to be much higher. The 2008 financial crisis and the 2020 pandemic were both once-in-a-lifetime economic events, and barring another dramatic economic upheaval, rates won’t quickly fall from their current range into that 3% zone again.

Is buying a home impossible now?

All of this means the OP is right and buying a house during the pandemic was an unprecedented opportunity. Unless and until the market corrects and rates decline, would-be buyers today may have a harder time.

This doesn’t mean getting a house is impossible, though. Anyone who wants to buy now will just need to be careful about their budget and will want to make sure they are shopping for the best mortgage they can find.  A financial advisor can help people to prepare for a home purchase even during these difficult times, and with the professional advice an advisor can offer, current and future buyers can make the decisions that are right for them in light of today’s market conditions. 

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