Purchase activity reaches the highest level in over 11 years, homebuilder sentiment posts biggest monthly surge EVER, and gain for single family permits points to building growth. All data indicates a surge in market activity This Week in Real Estate. Click here to read more.
If you’ve been waiting for the market to recover before listing your house, now is a good time to start getting it ready. New information from the Mortgage Banker’s Association shows mortgage applications to purchase homes is on the rise. Plus, the S&P 500 reached a two-month high and the Nasdaq finished at its highest close in three months. And, homebuilder confidence is rebounding. Click here to read more This Week in Real Estate.
We’re learning more about the potential economic impacts of the coronavirus as described by leading financial institutions. Past pandemics resulted in a V-shaped recovery, which is a sharp decline followed by a steep rebound, with minimal impact on housing prices. Despite global uncertainty what we do know is mortgage rates the past two weeks experienced the largest two-week decline since December 2008, people are still buying and selling real estate, the government has passed the largest financial stimulus package ever, and jobless claims have hit record highs. Let’s take a look at a few newsworthy events influencing This Week in Real Estate.
* Looking To The Future: What The Experts Are Saying. As our lives, our businesses, and the world we live in change day-by-day, we’re all left wondering how long this will last. How long will we feel the effects of the coronavirus? How deep will the impact go? The human toll may forever change families, but the economic impact will rebound with a cycle of downturn followed by economic expansion like we’ve seen play out in the U.S. economy many times over. When looking at GDP (the measure of our country’s economic health), a survey of three leading financial institutions shows a projected sharp decline followed by a steep reboundin the second half of this year. A recent study from John Burns Consulting also notes that past pandemics have also created V-Shaped Economic Recoveries like the ones noted above, and they had minimal impact on housing prices. This certainly gives hope and optimism for what is to come as the crisis passes. From expert financial institutions to business leaders across the country, we can clearly see that the anticipation of a quick return to normal once the current crisis subsides is not too far away. In essence, this won’t last forever, and we will get back to growth-mode.
* Residential Construction is Bright Spot in Jobs Report, but More Workers Start to Stay Home. While overall construction employment fell in March, according to the Bureau of Labor Statistics, residential construction added 2,000 jobs. It remains to be seen how long that will last. In its second weekly survey of residential homebuilders, conducted from March 24 to March 31, the National Association of Home Builders found 64% of respondents cited problems with the willingness of workers and subs to report to a construction site up from 42% a week earlier. “Keeping construction going is essential to our economy in so many ways. Shelter is as critical as food and water. So we need to continue building so that there’s not a shortage of housing downstream, particularly affordable housing,” said Toby Bozzuto, CEO of Bozzuto Group.
* Mortgage Rates Drop on Fed Intervention. The average U.S. rate for a 30-year fixed mortgage fell to 3.33% this week, according to Freddie Mac, as the Federal Reserve’s bond-buying program created demand for securities backed by home loans. Together with the prior week’s drop, it was the largest two-week decline since December 2008. The Fed revived its bond-buying program on March 15 in an attempt to grease the wheels of the lending markets and prevent the type of credit crunch that devastated the mortgage industry more than a decade ago. This week’s 17 basis point drop in the average 30-year fixed rate indicates it’s working. “That drop reflects improvements in market liquidity and sentiment,” said Sam Khater, Freddie Mac’s chief economist. “Homebuyer demand has declined in response to current economic conditions,” Khater said. “The good news is that the pending economic stimulus is on the way and will provide support for both consumers and businesses.”
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.”
Mortgage Rates May Tumble to Record 3.3% by 2019’s End. Fixed mortgage rates could fall to 3.3% by the end of the year as the nation’s economy slows, according to Lawrence Yun, chief economist of the National Association of Realtors. That would put the rate just a smidge below the 3.31% seen in November of 2012 – the lowest average for a 30-year fixed mortgage in Freddie Mac data going back to 1971. “But lower rates may not help with affordability because home prices are re-accelerating higher, easily above the latest wage growth. Housing inventory has recently stopped rising, putting upward pressure on home prices of moderately priced homes,” Yun said. “But there is still a time to get the economy into a higher gear with increased home building of affordable homes and lessening trade tensions.”
* A Smaller Share of Prospective Buyers is Actively Looking For a Home. A national poll in the second quarter of 2019 revealed that 12% of adults are thinking about buying a home in the next 12 months. Of that group, 41% are already actively engaged in the process of finding a home to purchase, which is a smaller share than a year earlier, when 50% of prospective buyers were engaged in the search process. This finding suggests that the lower mortgage rate environment of 2019 has not had the expected effect of nudging more people to start looking for a home to buy. Across generations, about 40% of Millennials, Gen X’ers, and Boomer buyers have moved beyond just planning and begun the home search, compared to only 21% of Senior buyers. Geographically, prospective buyers in the Northeast are the most likely to be actively looking for a home (47%), followed by those in the West (43%), and those in the Midwest and South (both 39%). How long are buyers who are actively engaged in the search process hunting for a home? In the second quarter of 2019, 45% had been at it for less than 3 months while the other 55% had been trying to find the right home for 3 months or longer. Those shares were essentially unchanged from a year earlier, when they stood at 46% and 54%, respectively.
* Residential Construction Spending Drops Further Off 2018 Pace. Construction spending inched up by 0.1 percent in July, to a seasonally adjusted annual rate of $1.289 trillion compared to $1.288 trillion in June. The July figure is 2.7 percent lower than the rate of spending in July 2018. On an unadjusted basis, spending for the month was $119.214 billion and for the year-to-date (YTD) stands at $733.782 billion, down 2.1 percent from the $749.888 billion spent during the first seven months of 2018. Private sector spending on residential spending was at an annual rate of $506.743 billion compared to $503.515 billion in June, an increase of 0.6 percent but down 6.6 percent from the prior July. Single family construction was at a rate of $268.138 billion a 1.4 percent month-over-month gain but a decrease of 8.5 percent on an annual basis. For the YTD, total residential spending has totaled $289.891 billion, $150.219 billion of it on single-family houses. During the same period in 2018 the respective totals were $316.929 billion and $164.529 billion. These represent declines of 8.5 and 8.7 percent.