Until recently, the prognosis for the housing market wasn't great. With the economy in a free fall, home sellers swiftly took down their "For Sale" signs and many would-be home buyers chose to wait out the coronavirus pandemic. The pause button was pushed on the normally bustling spring home-buying season. Recovery now appears to be straight ahead and home buying season appears to be ramping up to be in full swing.
As states reopen their economies, the summer real estate market just might turn out to be hotter than anyone was anticipating. For the first time in more than two months, mortgage applications for home purchases were up year over year, rising an impressive 8.7% as buyers raced to lock in record-low mortgage rates in May 2020.
This is according to a weekly survey from the Mortgage Bankers Association that spans more than 75% of U.S. residential mortgage applications. The purchase of loans did not include mortgage refinances for those who already own homes. California mortgage rates shot up 75% for the week ending May 28th, 2020 according to
Bigger Rebound Than Expected
"This is a bit of a bigger rebound than I expected," says realtor.com® Chief Economist Danielle Hale. "It's a sign that we are going to see a delayed seasonal bump in home sales. There's pent-up demand from people who weren't able to get out in the early part of the spring, and we're seeing that [materialize] now.
Even Bigger Jumps Expected in June and July
"Normally we see sales really ramp up in March and April," she continues. But amid the pandemic and widespread job losses, many Americans wanted to wait not only until they felt more secure in their jobs but also until they could physically step into the homes they were considering.
"We're going to see that ramp up in June and July," says Hale.
The recovery may be thanks to folks becoming more comfortable with the idea of embarking on the home-buying process as they've gotten used to taking precautions such as wearing masks and keeping social distance. Plus, more sellers are listing their homes now that cities and states are loosening restrictions. There are those ultra-low mortgage rates, hitting 3.08% on Wednesday for a 30-year fixed-rate loan, according to Mortgage News Daily. Some companies offer as low as 2.75% on a buy down.
"The low mortgage rates, without a doubt, are helping to entice buyers back into the market," says Lawrence Yun, chief economist of the National Association of Realtors®. Folks may also look at it as a less volatile investment.
"Real estate may be viewed as a safe asset in the upcoming years," says Yun.
Despite the highest unemployment since the Great Depression, buyers are also taking out larger mortgages again. The average loan size was about $340,200 in the week ending May 22. That was up from a low of $315,300 this year in the week ending April 3.
While laid-off or vulnerable workers certainly don't have an investment on their minds, today's intrepid buyers are better off financially—and are typically still employed, says MBA economist Joel Kan.
Pre-Corona Home Buying
Before the crisis, purchase applications had been rising about 10% annually.
Immediately Post Corona Virus
Then they plunged in mid-March as the nation declared a state of emergency, hitting their nadir in early April, with applications down more than 35% year over year.
Home Buying Season temporarily got put on hold, however, as time passed and states began reopening, more would-be homeowners began submitting applications again. In the previous week, applications were down only 1.5% annually in the seven days ending May 15.
"The pandemic really hit us right at the time when home-buying activity really ramps up," says Kan. All of which resulted in "a late home-buying season."
Home Buying Recovery
The recovery has been uneven, though, with the number of purchase applications remaining well below normal levels in the hardest-hit states. In New York, the nation's COVID-19 epicenter, purchase applications were still 16.9% less than a year ago in the week ending May 22. However, that was a big improvement over the previous week, when applications were down 32.8%.
In Washington state, applications were 23.1% below the same week last year, while in California they were down only 1.7%.
Despite the encouraging national numbers, it's likely too soon to declare a roaring comeback for the housing market.
"I'd want to wait a couple of weeks so we know that this is really a trend and not a one-time blip," says Hale.
Plus, there is still a severe housing shortage, which has only gotten worse during the public health crisis. Many sellers have pulled their properties off the market or are holding off on listing their abodes until the virus is under control and they can fetch top dollar for their residences. That can make it tough for buyers to find the right properties.
"Sellers haven’t come back as quickly to the market as buyers have," says Hale. "Buyers may be surprised by how competitive the market is.” But home buying season is going to hit.
This could result in higher prices this summer, as there will be more folks competing for homes than actual homes available for sale. Very likely to see multiple offers and higher prices as people compete in a lack of inventory market. Check your home value now here
"Given the strength of this recovery, home prices will probably rise about 4% to 6% in 2020," predicts NAR's Yun.
Hale also believes prices could go up and stay that way through the late summer. But if the coronavirus resurges in the fall and the economy continues to falter, prices could flatten or even dip a tiny bit by the end of the year. They're not likely to plunge like they did during the Great Recession, though, as demand is simply too high.
"We have so many millennials who are at ages when they want to settle down and they want to buy a home, and that really helps keep the market busy," says Hale.
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