Given all the coverage, if you’re not getting sick from the virus (stay healthy and strong), you’re probably sick of COVID-19 (coronavirus). There’s no doubt that it’s caused no shortage of disruptions to our economy and our lifestyles. However, there are signs that the impact may be somewhat temporary in nature. For evidence of this, one need look no further than the housing market.
If anything is a bellwether of the strengths of the economy, housing is probably a good candidate. The reason is that between construction and spending on supplies and services related to your house, housing’s overall contribution to gross domestic product (GDP) averages between 15% – 18%. GDP is the most widely accepted global metric of economic growth (or lack thereof).
What evidence do we have for this confidence in the housing sector and the fact that it could be the right time to purchase a home if you’re ready? The rest of this article will go into why we have confidence in the housing market at this point and why you should, too!
Purchase Applications Are Up
We’ve gotten used to seeing nothing but bad headlines when it comes to the economy at this point. However, in the housing market, the reality on the ground is starting to show itself to be a bit different than the story being told on cable news.
Specifically, applications to purchase a home are running 9% higher than they were a year ago on a seasonally adjusted basis. That’s particularly powerful because last year at this time, we were in a much better situation economically than we are at the moment, but there’s still an even stronger consumer demand for housing.
It’s likely that a couple of factors are driving this: One, to stimulate consumer borrowing and spending, the Federal Reserve has made several moves which have resulted in mortgage rates that are at or near historical lows, according to Freddie Mac.
The second probable factor has to do with the fact that we’ve recently been spending so much time in our homes. On one hand, some people might be feeling too crowded and want to get a bigger home, taking advantage of a social distancing philosophy to get more personal space from their family. (I love you, fam!) On the other, this experience may strike others at a time when they realize they don’t need all of this other space. It could be time to downsize.
People Are Returning To Work
If you read the headlines, you could be forgiven for thinking that it’s all bad news when it comes to employment right now. While there are a lot of people out of work and we don’t intend to minimize it, there are signs that we’ve started to turn a corner.
While initial claims for unemployment insurance continue to register in the millions each week, there are a couple of things to keep in mind. First, many claims were delayed in processing due to backlogs created by technology that wasn’t designed to handle the level of layoffs generated by the initial economic impact of business shutdowns around the virus.
However, the second and definite positive factor is that in the latest available data, the number of continuing claims nationwide has dropped, and that’s true for the majority of states as well. This means that people are coming off unemployment, either because they were able to return to their previous jobs or they found new work. The restoration of income should lead some who were previously looking at homes back into the market.
Price Of Existing Homes Going Up
There can be no doubt that the COVID-19 situation has had an impact on sales of existing homes – they were down 17.2% in April and have fallen 17.8% on the year. Shelter-in-place and stay-at-home orders definitely hurt sales for the month, but what’s interesting is the price trends. They’re up roughly 2.17% in the month of April and 7.4% on the year.
The trend in increasing prices is representative of a couple of things. For starters, about 1.3% less inventory was on the market. Inventory did increase slightly, up to 4.1 months at the current pace of sales compared to 3.4 months in March. However, if you’re a buyer and find a house you like, you might as well put an offer in because the options are still relatively scarce.
The drop in inventory last month signals that, at least in the minds of many sellers, any downturn is very temporary, and they believe they’ll be able to give a higher price for their home in a month or two.
New Home Sales Are Higher
New home sales were up 0.6% in April. Admittedly, this is after they felt 13.67% in March, but it does show there’s still interest there. Both new and existing home sales could go up quite a bit in the coming months. The recent week-to-week increases in the purchase applications certainly point in that direction.
Something else that may be of particular interest to buyers is that the prices of new homes have been falling, down 6.49% since February and are down 8.58% since April of last year. Builders aren’t in the business of sitting on inventory, so now might be the time to jump on a home if you’re looking in the new construction market.
Real Estate Agents Are Optimistic
During the current situation, the National Association of REALTORS®has been sending out weekly surveys taking a temperature of the home buying and selling experience from the point of view of a randomly selected sample of their membership. Although all real estate is local and the situation on the ground is going to vary from market to market, it’s important to note that 79% of those surveyed fall into one of two categories when it comes to the effect this is having on real estate transactions:
- Some have observed that nearly everything to do with the transaction can be done while following social distancing rules; and
- Where it’s been necessary to have interactions between people in close proximity, extra precautions like masks and gloves help with increasing safety.
Another interesting data point in the same survey shows that 68% of sellers hadn’t lowered their selling prices in the week of May 18. In the next largest group, 19% of sellers had lowered prices by less than 5%, while 9% had lowered prices by 5% – 10%. While it’s possible to get a deal, you shouldn’t necessarily go in expecting one.
Behaviors are changing to get the job done while also taking precautions. In 76% of cases, buyers are being told to use hand sanitizer or wash their hands along with other precautions like clothes, shoe covers or masks. Appraisers and home inspectors are taking similar precautions. Where open houses or in-person tours are not desired or are even prohibited, virtual versions have started to take their place.
If you’re ready, and you want to go through with getting a new place, we’re here to help and walk you through what you need to know. Feel free to get started with Rocket Mortgage® by Quicken Loans®.
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