We’re confronting a global health issue right now. It seems like no portion of the economy (or life in general) has been untouched, either by the disease itself or the measures put in place to contain it. Real estate and the wider housing market have been no exception.
Our Top Story
COVID-19 isn’t just the top story, it’s the story, but before we get into hard data around its impact on housing and what it means for real estate agents, it’s worth taking a look at how we got here. It’s been a long, strange month.
On March 16, in conjunction with the Centers for Disease Control and Prevention, President Trump announced that he was asking Americans to avoid for 15 days gatherings of 10 or more people, discretionary travel and going to bars and restaurants, a guideline which has since been extended to 30 days. That same evening, the Federal Reserve put in place a range of measures including slashing short-term interest rates to zero in order to make borrowing cheaper and stimulate the economy through consumer purchases. Governors followed shortly thereafter in most states by issuing stay-at-home orders in their states for all workers deemed nonessential. While there’s some evidence that it’s having a positive impact in slowing the spread of the virus, there can be no doubt as to the negative impact this has had on the economy.
In recent weeks, more than 22 million people have filed for unemployment. Moreover, a bill is working its way through Congress that would help provide additional relief to small businesses after the Paycheck Protection Program in the initial stimulus package quickly ran out of its appropriated funds due to overwhelming demand.
As real estate agents, you’re playing a different game than you were a month ago, but there’s some good news. To begin with, interest rates are near historical lows. That means your clients who are still working and seeing money coming in right now have the opportunity to take advantage of the situation to secure really favorable financing. You can even score some brownie points for clients who aren’t looking for a new home right now but might be in a good position to refinance.
Second, it’s possible to help those clients who are ready accomplish their goals, even in this different world. With modified appraisal and closing procedures, we’re able to help your clients since your home financing while also protecting the health of our clients, our team members, their family members and the communities in which we live, work and play.
Real estate agents also have a big role to play here. Many of you have adapted to the current situation and started offering virtual tours. Even beyond things related to the actual transaction though, you can set yourself up for success by being a calming voice in your client’s ear. With things changing as rapidly as they are at the moment, it’s as important as ever that your clients be able to rely on you to be a trusted advisor. They need to know you’ll be there to give them counsel as they navigate this new reality in the market. If you can follow through on this, your clients will remember the great experience they had.
News You Can Use
Here are some key reports to help you gauge the state of the housing market. These were compiled with the assistance of summaries from Econoday.1
FHFA House Price Index
This data is a little old because the house price indexes from FHFA and S&P run 2 months behind, so this data is for January despite being released at the tail end of March. Nevertheless, heading into the current situation, house prices were looking pretty good overall.
Prices were up 0.3% in January and 5.2% on the year. The FHFA pointed out that much of the strength within the market for new homes.
S&P CoreLogic HPI
The S&P data for January agreed with the FHFA data on a seasonally adjusted basis across the 20-city index. However, overall, prices were flat for the month. The good news is that on a year-to-year basis, prices are still up 3.1%, so sellers are still seeing some solid return on investment.
Pending Home Sales Index
Before COVID-19 hit, the number of homes under contract for sale was looking pretty good in February, which is usually a pretty good indicator for those to turn into existing home sales in March. Pending sales were up 2.4% to an index level of 111.5.
Existing Home Sales
Unfortunately, existing home sales in March took a big hit due to the initial impacts of shelter-in-place orders in many areas due to COVID-19. On a seasonally adjusted basis, sales of existing homes were down 8.5% on the month to 5.27 million. On the year, this is an increase of only 0.8% compared to the previous annual gain pace of 7.1% in February.
It is interesting that sellers have yet to lower their prices, given market conditions. The median home price was actually up quite a bit to $280,600, which is a rise of 8% on the year. It’ll also be interesting to take a look at whether more unsold properties mean more inventory on the market or if sellers will pull the properties off the market to try and wait for a more advantageous time. At the current sales pace, there’s still only 3.4 months’ worth of properties available on the market.
New Home Sales
New home sales were down about 4.6% in February to come in at a seasonally adjusted annual rate of 765,000. Despite this, new home sales prior to the start of all this were about as high as they’ve ever been.
The median price of a new home went up more than $20,000 to 345,900 as supply fell 0.9% on the month. The supply situation with new homes is better than the one for existing homes. Here, supply was at an even 5 months relative to sales.
Housing Market Index
As a group, builders aren’t confident in the housing market. The index plunged 42 points in April to come in at 30, symbolizing deep contraction in market sentiment during what’s normally a busy spring season due to COVID-19.
Losses were deep across all regions. The Northeast in particular only mustered a market sentiment score of 19.
In terms of individual components traffic in homes was only at 13, down 43 points. People understandably aren’t touring new homes right now. Meanwhile, current sales and those anticipated over the next 6 months came in at 36, down 43 and 39 points, respectively.
Housing starts were down 28.6% in March to come in at 1.216 million on a seasonally adjusted basis. COVID-19 is definitely having an effect on construction. The number also came in below expectations, while numbers for February were revised down quite a bit as well. Additionally, completion of construction was down 6.5% to 1.227 million on an annual basis.
If there’s good news to be found here, it’s in the permit section where there are indications that builders may see in this crisis as temporary. Although permits were down 7.3% to 1.353 million after seasonal adjustment, the fact that builders are still interested in pulling permits suggests that they expect to be building again soon enough.
Mortgage rates have been near historical lows recently, according to data from Freddie Mac. If your clients are ready, they have a real opportunity to take advantage of the market right now.
The average rate for a 30-year fixed-rate mortgage with 0.7 points paid in fees fell a couple of basis points to 3.31% for the week of April 16. This is down from 4.17% a year ago at the same time.
Taking a peek at shorter terms, 15-year fixed mortgages averaged 2.8% with 0.7 points paid, up a few basis points on the week. This is still down from 3.62% last year.
Meanwhile, the average rate on a 5-year, treasury-indexed, hybrid adjustable rate mortgage with 0.3 points paid was down 6 basis points to 3.34%, which has fallen from 3.78% in mid-April last year.
Go ahead and use this market knowledge to give your clients an edge at the negotiating table. If you like what you see, check out even more real estate agent resources. Stay safe and healthy!
1 Important Legal Notice: Econoday has attempted to verify the information contained in this calendar. However, any aspect of such information may change without notice. Econoday does not provide investment advice, and does not represent or warrant that any of the information is accurate or complete at any time. Copyright 2020 Econoday, Inc. All rights reserved.
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