Has housing bottomed out?
Housing data for the month of May paints a confusing picture. Existing Home Sales were off 9.7% from April and compared with a year ago, purchases were down 26.6% — the biggest annual slide since February
2008. But New Home Sales were up 16.6% from April and were 12.7% higher from a year ago. The National Association of Realtor Pending Home Sales Index was even more impressive, up 44.3% from April, the highest month over month increase since the series began in January 2001. However, the index was down 5.1 % from a year ago, so the news wasn’t all rainbows and unicorns.
What’s going on? One issue is when the reports are compiled. Existing Home Sales are counted when transactions are closed. New Home Sales and the Pending Sales Index are based on when contracts are signed, which means those two generally lead the former by a month or two. If we were not amid a health pandemic, I would happily declare that the housing market likely bottomed in April. But as new cases of the virus spike in the South and West, it’s too early to say that the worst is behind us.
While activity has been wobbly amid the lockdown, the pre-pandemic trend of high prices persists. You can blame the simple fact that there are not a lot of houses for sales. As of May, inventory for existing homes was down 18.8% from a year ago, the lowest level since at least the early 1990s. The lack of homes for sale has pushed up prices, with the median existing home price at $284,600, up 2.3% from a year ago, and the median sales price of new houses sold in May at $317,900.
Does that mean you should put your house hunting on hold? Not necessarily. Although the economy has entered a recession, for those who have secure jobs and have run the numbers, there are compelling reasons to consider purchasing a home. The most important is that mortgage rates have dropped to all-time lows.
According to Freddie Mac, a 30-year, fixed-rate mortgage carries a 3.13% rate, while a 15-year is at 2.59%. Those low rates have encouraged would-be buyers to emerge from lockdown to get back in the game.
While it took more than 10 years for purchase demand to rebound to prerecession levels after the Great Recession, Freddie Mac notes, “In this crisis, it took less than ten weeks.” The quick turnaround also may have something to do with the pandemic itself, as many urban dwellers headed out of their cities, seeking space and nonelevator living in the suburbs.
Analysis by the American Enterprise Institute found that during the four weeks from mid-May to mid-June, home purchases (as measured by interest-rate mortgage application locks) in non-urban areas increased by a third more than in urban areas compared to the same period last year. Economist Joel Naroff believes “the virus may be helping as people who were on the fence about where to live may be turning to less dense locations.” But he also cautions that it will be a while before it becomes clear whether these moves were temporary or part of a longer-term trend.
Finally, many would-be buyers are reluctant to pull the trigger on a purchase, before their employers decide about work from home schedules. If more companies incorporate job sharing and remote working into their businesses, many workers could potentially live in cheaper areas that provide other benefits like more space or proximity to family, without forgoing career advancement. That type of migration would be a game-changer for the real estate market.
Jill Schlesinger, CFP, is a CBS News business analyst. A former options trader and CIO of an investment advisory firm, she welcomes questions at askjill@jillonmoney.com.