With the housing market staggered to some degree by the health crisis the country is currently facing, some potential buyers and sellers are questioning whether home values will be impacted.
The fact is that the price of any item is determined by supply as well as the market’s demand for that item.
Home-buying demand took another step towards recovery, gaining strength for the third week in a row, according to Redfin’s latest weekly report. After plummeting as much as 34% in March, home-buying demand is making a speedy recovery, down only 15% from pre-pandemic levels.
Buyers are nervous, but continue to pay up. Prices are up 1% compared to last year and affordable homes are selling like hotcakes.
Real estate agents active in the market can feel the momentum starting to turn. Home Buyers that had put off their search in March are getting back out there and you are starting to see multiple offer competitive situations all over the DC, Maryland, Virginia area. It is pretty obvious that buyers ready, willing and able.
However, It seems like the number of houses on the market has come to a screeching halt.
In the week ending April 5, the number of new listings dropped 31% year-over-year, following a 34% decline in the previous week ending March 29.
It was expected that new listings would rebound like home buyer demand but it has not. For the week ended May 2, total listings were down 19% annually, and new listings were down 39%, according to realtor.com.
Mortgage rates ticked down this week to about 3.25%. That’s almost 0.5% lower than they were at the beginning of April, and approaching the all-time lows we saw back in early March. Fannie Mae forecast that rates will continue to fall, and could dip below 3% for the first time ever in 2021.
Lower rates are making monthly payments more affordable; the 0.5% decline in rate reduces the monthly payment on a $700,000 home by $120 per month. It is taking longer to close mortgages but the markets are still moving. After an initial panic over the CARES Act Forbearance issue, things have returned to normal thanks to the FHFA realizing the mistakes of Congress and fixing it.
So what happens when demand is high, supply is low, and mortgage rates are low going lower?
Prices are going to UP, WAY UP!
And you don’t have to take my word for it either. Look at what’s already happened!
At the height of the COVID-19 pandemic in the DC, Maryland, Virginia area prices went UP 1%.
Diving even deeper look at how real estate has reacted in all the economic downturns previous:
In 3 of the 5 home prices went up by more than 6%. In 1 home prices stayed level and in 2008 home prices dropped almost 20%. This is looking at a national view. You look at the DC, Maryland, and Virginia area specifically the numbers only get better.
Here are the thoughts of three industry experts on the subject: Ivy Zelman:
“We note that inventory as a percent of households sits at the lowest level ever, something we believe will limit the overall degree of home price pressure through the year.”
“Housing supply remains at historically low levels, so house price growth is likely to slow, but it’s not likely to go negative.”
“Two forces prevent a collapse in house prices. First, as we indicated in our earlier research report, U.S. housing markets face a large supply deficit. Second, population growth and pent up household formations provide a tailwind to housing demand.”
THE BOTTOM LINE
Housing prices are not just going to rise in 2020, they are going to SKYROCKET!