Will the Housing Rebound Last? The Devil's In the Data
When the COVID-19 outbreak led to sweeping shutdowns across the U.S. in the early spring, few analysts and pundits believed the following statement would hold true at the start of the summer: the U.S. housing market is on solid footing.
The most up-to-date and precise industry data now shows that the market has rebounded nicely since ending its freefall in mid-April. This bounce back is continuing even as COVID-19 cases spike throughout the southeast and southwest.
Last week’s home sale volume was up 13.7% nationwide compared to the week ending March 13, which was the point in which many pandemic restrictions were first implemented. This brings total listings under contract to more than a million since early March. Despite all of this spring’s headwinds, contract volume is down only 0.9% versus the same period last year.
The combination of steady demand, low interest rates and continued access to credit has underpinned a strong homebuying surge over the course of May and June. The market has also greatly benefited from listing agents and sellers gradually adapting to virtual showings and utilizing new online tools to improve remote viewing processes.
But the pandemic is constantly reminding us that markets can shift on a dime. It’s extremely difficult to predict how housing fundamentals and the overall economy will react to a true second wave of COVID-19, the end of the Paycheck Protection Program, the unpredictability of another stimulus package, and uncertainty linked to the 2020 election cycle. A temporary resurgence is certainly no guarantee of long-term stability.
Current homeowners, prospective buyers and lenders face a number of unknowns as a result of the pandemic. Fortunately, there is ample data available to track the housing market’s gyrations and inform pragmatic decisions. Consider starting with the following:
1. Assess the volume of new home listings each week to stay current on the national supply and demand picture. New listings are currently down 24.4% nationwide compared to the week ending March 13. While this drop has naturally dragged down the overall volume of sales, the lack of saturation in the market has helped fuel sustained demand and keep prices relatively stable. The listing lull has also signaled that homeowners are not rushing to sell their homes because they need to downsize due to financial hardship. With this context in mind, savvy market participants should keep a close eye on the “supply deficit” because a disproportional surge in listings could signal the economic impact of the pandemic is beginning to hit households and result in downward pressure on home prices.
2. When evaluating home sale figures, look at which “price ranges” are moving. One of the most encouraging aspects of the housing market’s spring rebound is that it was clearly driven by middle class and working class homebuyers. Since the week of March 13, nearly 90% of sale contracts have been for houses worth $600,000 or less. Demand for starter homes and moderately-priced homes is poised to keep up in the near-term based on the fact that approximately 92% of the “supply deficit” is concentrated in the $0 to $600,000 price range. Some opportunistic sellers may view this as a catalyst for listing a home now, while discerning and patient acquirers might consider holding their dry powder until the supply-side normalizes.
3. Review the significant amount of state-level information available. Although national home sale data often grabs the headlines, the bigger story has been what is occurring at the state level. At least 39 states – including Florida, Texas and New Jersey – are “seller’s markets” right now based on inventory imbalances. If inventory balances out in a state, however, it could quickly impact a home’s listing price and time on the market. This is why staying on top of state data is an important supplement to tracking neighborhood-specific information.
While this explosion of available housing market information may seem overwhelming, focusing on a few key national and state indicators is simple. Organizations such as HouseCanary, Zillow and the National Association of Realtors each publish a considerable amount of free and digestible data on an ongoing basis.
Whether you’re a potential first-time homebuyer or an investor with a portfolio of 100 houses, don’t try to navigate the road ahead without the right data. The lessons of past financial crises are littered with impulsive and unnecessarily risky real estate investments that could have been avoided by analytical decision-making.