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What Do Housing Market Indicators Forecast For the Future?

What Do Housing Market Indicators Forecast For the Future?

As the coronavirus pandemic swept the nation, housing market predictions ran the gamut from optimistic to grim. With few experts agreeing on what the future of real estate will look like, forecasts continue to change with each passing week. Despite this, housing prices have risen for the 33rd consecutive quarter across the United States.

With stay-at-home orders beginning to lift across the country, parts of the workforce preparing to return, and unprecedented interest rates offered by many lenders, early trends indicate the market may be beginning to return to normal. The following housing market indicators show how the market has begun to find its footing amidst the Covid-19 crisis.

Home sales have declined but prices remain strong

The National Association of Realtors found that in March 2020 the median existing home price across all housing types was $280,600; this an an 8% increase from March 2019 with prices increasing in every region. However, the unsold inventory in March was equal to a 3.4-month supply at current market pace. While this is an increase from the 3.0-month supply in February, it is a decrease from the 3.8-month figure from March 2019.

Dramatic reductions in housing supply

The April 2020 report by [] found that available inventory has continued to decline. This is due to both a lack of newly listed properties as well as some sellers opting to de-list their homes and wait until stay-at-home orders and social distancing measures are further lifted. The national inventory is down 15.3 percent year-over-year, with inventory in large markets down 16 percent. Newly listed properties have experienced the sharpest decline with a 44.1 percent year-over year-year decline and a 45.5 percent decline in large markets.

Mortgage rates may drop below 3 percent

As the Fed drops their own rates to historic lows, lenders have been slow to dramatically lower their rates. However, interest rates have declined steadily since the beginning of the Covid-19 crisis; many experts now predict that mortgage rates may drop below 3 perfect before the end of 2020.

While the current economic climate coupled with low inventory may prevent some new buyers from purchasing homes, current homeowners stand to gain the most through refinancing. Fannie Mae predicts that refinancing will increase 40% in 2020 from 2019 as homeowners capitalize on the lowest interest rates in more than a decade.

Long-term implications for new construction

Early predictions for 2020 showed that new construction would be slow to sell. This has proven true, with the builder confidence index seeing its largest ever recorded drop in March. In addition, the National Association of Homebuilders index fell a record 42 points in April 2020 to just 30. While an index of 50 or higher means builders are optimistic, this low number indicates builders will finish their current projects but are unlikely to begin entirely new construction.

New construction supply will be further constricted for the long term as social distancing guidelines slow down construction. Likewise, many manufacturers of construction supplies such as PVC pipe and shingles were shut down or switched to producing essential products such as plastic sheeting. This may have implications on the supply chain for many construction enterprises.

by Author, June. 17, 2020

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