Business as we know it has changed drastically over the last several months due to the outbreak of the COVID-19 pandemic. As we are now in June and early summer, we are beginning to emerge and return to the "new normal" of daily life. As agents of the real estate industry, we have seen major fluctuations in the market across the United States akin to a roller coaster flying over dips and hills. In this blog we are looking to consolidate the state of affairs in the real estate market, analyzing the statistics and looking into the crystal ball on what the summer and fall will hold for home-buyers and sellers.
At the beginning of the stay-at-home orders, we naturally saw a sharp dip in almost every statistical category in real estate. One of the more significant drops was in current inventory, which slid over 50% in year-over-year measurements as sellers retreated from the market. Even if buyers were still in the market in early to mid March, the inventory was just not able to keep up with demand pushing trends to affordable housing in lower-priced homes and apartments. With conditions changing quickly, this was the time that we began to see massive shifts to digital services, with video chatting gaining usage in double digit percentages in year-over-year comparisons. Once the initial dust settled and real estate companies were able to set guidelines in accordance with the safety protocols of the CDC, we started to see the sharp dip slow down as a fully digital process was born for new homebuyers and sellers.
As the fallout continued in mid-March, notably the incredible and unprecedented drop in Federal interest rates that came on the heels of that initial fallout, home mortgage rates followed suit and plummeted. The FED cut interest rates and in turn, caused a dip in mortgage rates down to 3.29% for a 30-year fixed, the lowest rate on record and the catalyst to a frenzy of mortgage applications. According to the Mortgage Bankers Association,
"The Market Composite Index, a measure of mortgage loan application volume, increased 55.4 percent on a seasonally adjusted basis from one week earlier to the highest level since April 2009."
Refinance applications naturally jumped alongside the cut mortgage rates in March, up 79% in a single week, the largest margin of increase since November of 2008. The predictions were anticipating some modicum of stabilization but with hindsight on our side, we had more dips approaching for the mortgage rate. Today, the mortgage rate for a 30-year fixed rate mortgage sits, on average, at 3.52%. Realtor.com put together a useful market prediction chart for the remainder of 2020 and where mortgage rates could end up. According to their data, we have yet to see the most significant drop in rates as their predictions see a decrease to 2.9% before the end of the year.
Buyer demand almost became a non-factor, as we briefly mentioned above, during the stay-at-home orders. As we begin seeing data emerge from the last two months, buyer demand is a hard metric to cover because of the strong dip in inventory. Basic economics tells us that when demand is high and inventory is low, median prices naturally rise to buoy the playing field, and this trend began emerging in April. Average listing price is one of the only statistics that has seen positive growth, for reasons stated above. It has fluctuated, but as of this week we are 1.4% higher than last year at this time. According to the National Association of Realtors,
"72% of real estate agents stated that sellers have not lowered prices. The majority of those who said that sellers have adjusted their ask reported a decrease of less than 5%."
Conversely, 58% of surveyed agents maintained that buyers expected lower prices around 5-10%. The stalemate here is understandable as both sides want a deal, but the sellers are owning the market as of late May.
Amenities have also been an evolving force, reinforced by real estate companies measuring their individual search metrics. Into the immediate future, Realtor.com presents evidence that millennial home buyers are headed away from the densely populated cities into nearby suburbs. Representing the largest amenity preference shift among those measured. Storage, open spaces, and room for a home office are also ranking in the search.
The future holds some uncertainty for buyers and sellers as the market looks to buck its downturn and slingshot the pent up demand into a busy summer season. Home prices are expected to stymie, and flatten out over the coming months as more homes begin coming to the market. A completely digital process will unfortunately alienate some home buyers and sellers that are limited in technological ability, but in a market that is mostly run by millennials, these losses should greatly offset in favor of a significant market recovery. From the data we have seen from Realtor.com, NAR, Forbes, and MBA, a strong market will roar back over the summer and fall and trend towards a full recovery by early 2021.