Economists are all over the board when it comes to predicting what’s next for our economy or how large of an impact the coronavirus will have on the housing market; however, new data on the condition of the market prior to the pandemic is giving us hope the market will bounce back when the pandemic passes. As we continue to navigate these uncertain times, here is what we do know… U.S. existing home sales climbed to a 13-year high in February, mortgage application volume remains high despite the rate of volatility, and residential construction remains strong as it awaits the coronavirus impact. Below are a few highlights from the third week of March impacting This Week in Real Estate.
“While the impacts of the coronavirus that causes COVID-19 continues to impact the housing market, once the effects of the pandemic pass, more homebuyers are likely to return to the market,” says Lawrence Yun, Chief Economist at the National Association of Realtors.
* U.S. Existing-Home Sales Climbed to 13-Year High in February.
U.S. existing-home sales rose 6.5% in February, increasing to a 13-year high, according to the National Association of Realtors. Total existing-home sales completed transactions that include single-family homes, townhomes, condominiums, and co-ops – rose to a seasonally adjusted annualized rate of 5.77 million. This means sales were 7.2% above February 2019’s rate.
According to Lawrence Yun, NAR’s chief economist, February’s sales of over 5 million homes was the strongest increase since February 2007.
“For the past couple of months, we have seen the number of buyers grow as more people enter the market,” Yun said. “Once the social-distancing and quarantine measures are relaxed, we should see this temporary pause evaporate, and will have potential buyers return with the same enthusiasm.” That being said, Yun noted that February’s home sales were encouraging but not reflective of the current turmoil in the stock market or the significant hit the economy is expected to take because of the coronavirus.
“These figures show that housing was on a positive trajectory, but the coronavirus has undoubtedly slowed buyer traffic and it is difficult to predict what short-term effects the pandemic will have on future sales,” Yun said.
Despite the market’s instability, of the four major regions, only the Northeast reported a decline in existing-home sales in February, while the remaining regions saw increases, including sizable sales gains in the West, according to NAR. Existing-home sales in the West jumped by 18.9% to an annual rate of 1.26 million in February, which is an 11.5% rise from 2019’s rate. The median price in the West was $410,100, increasing 8.1% from this time in 2019.
* Mortgage Application Volume Remains High Despite Rate Volatility.
After last week’s report on a record-busting week for mortgage applications what probably is surprising, as the country goes into virtual lock down over the coronavirus outbreak, is how strong activity remained.
“The ongoing situation around the coronavirus led to further stress in the financial markets late last week, with unprecedented volatility and widening spreads. This drove mortgage rates back up to their highest levels since mid-February and led to a 10 percent decrease in refinance applications. However, refinance activity remains very high,” says Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting.
The Federal Reserve’s rate cut and other monetary policy measures to help the economy should help to bring down mortgage rates in the coming weeks, spurring more refinancing. Amidst these challenging times, the savings that households can gain from refinancing will help bolster their own financial circumstances and support the broader economy. The purchase market was on firm footing to start the year and has so far held steady through the current uncertainty. Looking ahead, a gloomier outlook may cause some prospective homebuyers to delay their home search, even with these lower mortgage rates,” says Kan.
* Residential Construction Remains Strong as it Awaits Coronavirus Impact.
As anticipated, the two major data sets in February’s residential construction report declined from their January level but both construction permitting and housing starts maintained a significant edge over their performance in February 2019. February permits for residential construction were up 13.8 percent compared to a year earlier. Single-family permits were up 23.3 percent from a year earlier. Housing starts grew by 39.2 percent year-over-year. Single-family starts grew by 35.4 percent from a year earlier.
“Due to the slowdown in economic growth and the volatility in markets from the coronavirus, mortgage rates will remain lower for longer, which will help homebuyers in the longer run,” Kan continued, “However, we may start to see these homebuilding trends take a turn for the worse, depending on the industry’s ability to continue day-to-day operations during these difficult times.”