If you read the news, there’s no denying we’ve got some work to do when it comes to containing COVID-19 in certain parts of the country. However, we’re learning how to move forward and live with this.
If you’re in real estate, it should encourage you to know that the demand is there. Indeed, housing has been a real bright spot for the economy. With that, let’s get to the top headline.
The Big Story
Housing is the big story in and of itself. To understand why, let’s run through some quick statistics. Demand for housing is as strong as ever.
The market isn’t running quite as hot as it was a couple weeks ago, but as of this morning, purchase applications are still up 16% compared to where they were at this time last year. I think it’s important to put that in a bit of context.
We’re right in the middle of what would normally be a crazy busy purchase season. Last year at this time, the economy was arguably functioning as smoothly as it ever has. The unemployment rate was certainly incredibly low.
A lot has changed since last year, but the demand to purchase homes is actually higher. As we’ve said before, there are probably a couple of things driving this:
- Mortgage rates are at record lows. Last week, the average rate on a 30-year fixed mortgage with 0.8 points paid in fees was 3.03%, according to Freddie Mac. To understand just how low that is, last year at this time, the rate was 3.75%.
- People want to improve the spaces they been spending so much time in. A lot of time at home has exposed the flaws of the current setup for some. Maybe they’ve realized they could use more space or that they don’t need all the room they have. In other instances, maybe there’s something about the way the house is laid out that doesn’t hold up under the stricter scrutiny of constantly being in the space.
Obviously, we’re not operating in a traditional environment, and you should take even more care to make sure clients are ready. Still, there’s plenty of opportunity out there if you’re ready to jump on it!
News You Can Use
We’ve covered mortgage applications, and rates are about as low as they get. However, there was plenty of other economic news that hit in the last month. Let’s run through it! But before we get there, we want to acknowledge that some of the analysis in this report came from Econoday.1
Existing Home Sales
Existing home sales in May were down 9.7% and they had fallen 26.6% since the same time in 2019. The seasonally adjusted annual rate of sales fell to 3.91 million.
The dips were fairly even across the board, with sales in all regions down in levels at the upper end of the single digits or lower double digits by percentage. This was also a steeper fall than had been projected.
At least part of the reasoning for lower sales may be that sellers aren’t budging on price in the face of these market conditions. Prices are only down a median of 0.7% at $284,600. It appears sellers prefer to wait this out at the moment.
One thing that would help put some pressure on prices and bring them down would be more supply in the market. Fewer sales do mean more units. Because of this, supply in the market has gone from 4 months to 4.8 months relative to sales. Overall inventory was up 6.2% to 1.55 million.
New Home Sales
New home sales painted a bit of a different picture. These were up 12.7% overall to settle at a seasonally adjusted annual rate of 676,000. Certainly, this has been helped by very low mortgage rates, but there’s also reason to believe there’s at least some level of price discounting going on.
Although prices have recovered slightly from where they were in April, they’re still 4.69% below where they were in February before COVID-19 turned the world upside down.
Supply came in at 5.6 months relative to sales rates. While still indicating a relatively stable market, this does mean there’s more demand for new homes. With supply at 318,000 units, this was headed in the opposite direction of existing home sales in May.
FHFA House Price Index
These home price indexes have data that lags their release date by a couple of months, so the information from April is right in the middle of the largely nationwide shutdown. Still, prices were up 0.2% overall and 5.5% compared to last April, although that does represent a slight slowdown in the pace of year-to-year appreciation.
There were probably some effects from COVID-19 seen on prices. The Mountain and Pacific regions, which are typically big growth markets, had prices that were relatively unchanged for the month.
Gross Domestic Product (GDP)
While the overall economy shrank at a rate of 5% in the final analysis of first quarter economic performance and consumer spending was down 6.8%, for those reading this post, there was some positive news.
Residential investment was up 10.2% in the quarter. While much of this had to do with housing starts before the full force of COVID-19 hit, there’s reason to believe that trend might continue into the second quarter given the current spike in demand for housing.
Pending Home Sales Index
In a development that’s got to be a good sign for June existing home sales, pending home sales in May were up 44.3% to an index level of 99.6. This wildly exceeded expectations. There are more listings as well according to the report, which means your buyers may have more choice available to them.
Although not quite back yet, the index is now within four points of the recent February high, which represents a remarkable recovery and should be taken as a sign of encouragement.
S&P CoreLogic Case-Shiller HPI
Across the 20-city Case-Shiller Index, prices were up 0.3% on a seasonally adjusted basis. Overall home prices rose 0.9% when taking out seasonal factors. Meanwhile, prices have gone up 4% since last April, which is a slight uptick in yearly appreciation and the fastest pace seen since December 2018.
Overall consumer confidence was up 12.2 points to 98.1 in June. However, what’s really encouraging for real estate agents is that 6.5% of those surveyed anticipated buying a home in the near future. That places the reading among the highest for the year.
Consumer Price Index (CPI)
It’s nowhere near the Federal Reserve’s stated 2% long-run target, but there were the first real signs of price traction in months in yesterday’s CPI release for June. Overall prices were up 0.6% on the month, matching the rate of yearly appreciation.
It’s worth noting that when food and energy were taken out, prices were only up 0.2%. However, when looked at in terms of yearly rates, food and energy have dragged the overall index down. When these categories are taken out, year-to-year appreciation is 1.2%.
The cost of shelter should be the one that’s of particular interest to this group. The category saw prices rise 0.1% overall with matching rises for both rent and the homeowners’ equivalent.
The overall cost of shelter is up 2.4% in the last year. For a homeowner to rent the same space, this would have cost them 2.8% more than it did last year.
While things aren’t quite normal in just about any area of society right now, there are some real reasons for optimism, particularly if you’re a real estate agent right now. Check out our other info for real estate agents and have a great week!
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.
If so, subscribe now for tips on home, money, and life delivered straight to your inbox.