If Covid permanently shifted housing demand toward larger houses with more outdoor living space, shouldn’t condo price increases have lagged far behind single-family house price increases?

Metro Phoenix Median Sale Price in April (YoY)

  • Single-family houses = Up 27%
  • Condos = Up 25%

That doesn’t support the theory that Covid changed housing demand and caused the Spring 2021 real estate mania.

Covid may certainly have triggered the mania but it certainly wasn’t because Covid shifted demand away from condos and toward single-family houses.

Market Disruption Followed by Price Inertia

Maybe Covid mainly just temporarily disrupted the market and that triggered sharp price increases. The temporary sharp price increases, however, made people think there would be more sharp price increases so people were willing to pay more today which led to even higher prices, and people thinking prices would go up even higher tomorrow… and so on.

Vacation Home Demand

Or maybe Covid increased the demand for vacation homes of all types, single-family AND condos, after a year of lost vacations.

New York & San Francisco

I read that in only a few metros, like New York and San Francisco, did condo prices fall while prices of single-family houses in the suburbs rose. Recently read, however, that condo prices are increasing again in those mega-urban markets.

My Working Theory

  • Covid caused the Fed to decrease interest rates which increased demand.
  • Covid disrupted the supply of houses hitting the market.
  • Together they caused a huge – but temporary – imbalance that disrupted the real estate market and triggered higher prices.
  • Then higher prices triggered expectations of even higher prices in the future and Price Inertia kicked in. Price Inertia was the main factor behind the late Spring 2021 real estate mania.
  • As Price Inertia peters out, demand softens and prices level off but at a much higher level than they would have without the previous Price Inertia.