A Blog by Jonathan Low


May 30, 2020

Why Are US Housing Prices Not Falling In A Pandemic And Recession?

Because there was not a lot of supply to begin with, so demand and supply remain more aligned than might have otherwise been the case.

Whether that will continue is the looming question. JL

Emily Stewart reports in Vox:

The housing market, somewhat like the stock market, has been okay lately, even during a pandemic and economic recession. Pending sales are still down more than 10%. But house values are still up 4.3%, or more than a quarter-million dollars, year-over-year. Fast action from the federal government and Federal Reserve helped stabilize the housing market. Credit is much tighter, meaning people who own and buy homes are likelier to be able to afford it. Inventory is falling, which means prices aren’t falling. "The sky is not falling for home values, because there’s not a lot of supply.”
For house hunters wondering whether the coronavirus crisis might lead to a better deal on an upcoming purchase, there’s some bad news: probably not, at least not right now.
The housing market, somewhat like the stock market, has been okay lately — even during a pandemic, an economic recession, and a landscape where looking two days into the future seems murky, let alone two weeks or two months. It took a significant dive when the coronavirus first took hold in the United States and stay-at-home orders began to be put in place in March, but in recent weeks, it’s begun to come back. Everything’s not exactly back to where it was pre-pandemic, but the sky isn’t falling, either.
According to data from Zillow, total housing inventory is down about 20 percent from last year as of the week ending May 9, pending sales are still down more than 10 percent, and new for-sale listings down by about 25 percent. But house values are still up 4.3 percent, or more than a quarter-million dollars, year-over-year. The Commerce Department reported that sales of new homes rose slightly in April, and even though the National Association of Realtors reported that existing home sales plunged that month, prices increased. Some recent data suggests demand is on the rise.
“The whole picture is this has been a pretty measured response, and things are coming back,” said Ed Pinto, director of the American Enterprise Institute Housing Center.
So what gives? It seems as though buyers are starting to dip their toes back into the market. Sellers have been more reluctant, but there are still deals to be made — the thing is, because demand outweighs supply, on pricing, they’re not budging. Fast action from the federal government and Federal Reserve has helped to stabilize the housing market, too.
To be sure, housing markets are very much a local issue — what’s happening in New York is not the same as what’s happening in Texas, especially as both have been hit differently by the pandemic. And just because the market seems like it’s okay today doesn’t mean it will be tomorrow, especially with all the uncertainty surrounding the coronavirus and the economy.
“The long-term question is what happens to the unemployment rate, to GDP, how many restaurants go out of business, how many retail shops go out of business, how many malls, casinos, airlines close down,” Pinto said.

“In normal times, I could speak with some degree of confidence about what might happen in the future, but now, there’s so much uncertainty, all I can do is tell you what’s happening now,” said Mike DelPrete, a real estate consultant and academic. “We’re in the top of the second inning here; there’s a whole lot that’s yet to play out in this.”

Coronavirus hit during what was supposed to be the spring buying boom

Skylar Olsen, an economist with Zillow, explained that expectations for the housing market heading into the spring buying season were high. “This was going to be the home shopping season that finally was,” she said. But then the coronavirus hit. “Like any other industry, activity pulled back like crazy.”
As stay-at-home orders were put in place across the country and people worried about the potential for getting sick from the disease, many sellers began to pull their homes off the market, or those thinking of putting them on decided to wait. A lot of buyers weren’t exactly champing at the bit for an in-person hunt with a potentially deadly virus looming, and virtual tours, where they were even a possibility, weren’t necessarily a sufficient replacement. Tens of millions of Americans have lost their jobs, and the future of the economy is uncertain, making many people hesitant to buy. And for many sellers, the idea of having multiple people cycling in and out of their houses was not appealing.
“That was the immediate shock of the pandemic, especially in late March and early April, when these shelter-in-place orders were really widespread,” said Taylor Marr, an economist with Redfin. He said that thus far, the market’s biggest standstill landed the week before Easter.
Web traffic to real estate portals like Zillow and Redfin dropped by almost 40 percent in the immediate aftermath of the pandemic. New listings of homes for sale initially dropped by as much as 70 percent in some markets like New York and East Bay, California. Weekly mortgage applications dropped 17.9 percent in early April.
The crisis did not hit the same everywhere. According to AEI’s tracking of mortgage lock activity, meaning when borrowers and lenders agree on an interest rate for a certain period for a purchase, activity plunged in much of the country from the 14th through 17th weeks of 2020 — basically, in late March and April. New York and Michigan, for example, saw rates fall by more than 50 percent year-over-year; Washington, Nevada, and Illinois by roughly 25 percent; and Texas, Wisconsin, and Florida by about 15 percent. (A handful of states, such as the Dakotas, Nebraska, and Oklahoma, saw lock activity rise.)

A map showing where mortgage rate lock activity rose and fell.
State year-over-year change in purchase rate lock activity, weeks 14-17, 2020.
 AEI Housing Center

Activity has since picked back up.

A map showing mortgage rate lock activity.
State year-over-year change in purchase rate lock activity, weeks 20-21, 2020.
 AEI Housing Center

DelPrete noted that in locations where lockdowns were stricter and the outbreak more severe, housing markets have taken a bigger hit. So places like New York, Pennsylvania, and Michigan have seen new listings fall fast and rebound slower, while places like Texas fell less and recovered faster. “It’s all dependent on the severity of the lockdown,” he said.
Not every type of buyer and borrower has been affected the same, either. According to AEI, self-employed people and non-US citizens appear to be having a harder time securing home loans.

How the housing market is kind of okay

The housing market, like most of the economy, boils down to supply and demand — the houses available to buy, and the people who want to buy them. When the coronavirus hit, they dropped pretty much in tandem. That’s why you didn’t really see prices change and they continued to steadily creep up.

Now activity is picking back up, some of it pent up from the lost months, but it’s still tracking fairly closely. It appears buyers are returning at a faster rate than sellers. “That means overall inventory is falling, which means prices aren’t falling that much. That’s why the sky is not falling for home values, because there’s not a lot of supply,” Olsen said.
“Buyers who are hoping to get a good deal are going to be disappointed, because sellers aren’t budging,” Marr said.
It is worth pointing out that just because interest in buying seems to be on the rise doesn’t necessarily mean everyone is pulling the trigger. DelPrete cautioned that a lot of people, under lockdown, are bored, sick of their homes, and might just be browsing for fun. “It’s a form of entertainment — just because I watch HGTV doesn’t mean I’m going to buy a house; I’m kind of intellectually curious about it,” he said.
Some of the data is also lagging — what happened in the housing market in the entire month of April doesn’t necessarily say what’s happening week to week or day to day, especially given how quickly the coronavirus situation is changing. And buying a house takes time, from first reaching out to viewing, making an offer, and closing a deal.
None of this is to say prices will stay the same everywhere, or that prices aren’t likely to fall at all (Olsen from Zillow thinks prices could fall 2 to 3 percent and bottom out in October), but thus far, there’s no big plunge. A Zillow review of what happened to housing in previous pandemics found that during SARS, for example, transaction volumes plummeted, but house prices didn’t change much.
As Curbed recently noted, however, there’s a lot going on in the housing market that the data isn’t showing yet, and you can often use data to tell whatever story you want. The recent data on different stages of buying a home are from different periods of time, so it’s hard to string together. And national data doesn’t tell local stories:
For example, a housing supply shortage in New York City has literally no impact on whether someone can find a house to buy in Texas. While general national trends can hold true for even a majority of cities at any given time, each city is its own market with its own dynamics.
This is especially true right now because the pandemic has impacted each city differently. New York City is the global epicenter of the pandemic, while markets in Texas have been significantly less impacted. Any rosy national housing market data is likely understating the problem in New York City, and any dire data is probably overstating issues in Texas.

This time is not last time

Part of the reason it may feel somewhat dissonant for the housing market to be relatively stable right now — given, you know, everything — is what happened during the last big economic downturn. Prices fell by more than 30 percent during the Great Recession, and millions of people lost their homes. But this is not that.
Last time, the problem was housing — there was too much credit, people were getting mortgages they couldn’t afford, and there was a big housing bubble that eventually popped. The scenario is different now: Credit is much tighter, meaning people who own and buy homes are likelier to be able to afford it.
“Credit tightening has been targeted,” said Tobias Peter, director of research at the AEI Housing Center.
“We all know that under stress, borrowers who are the weakest are the first to get foreclosed,” Pinto said. “You’re not doing someone a favor by getting them into a home in a period of stress. Once the market really bottoms — and we’re not going to know that for many, many months, could be a year — that’s when you want the market to be more available to those borrowers. You want them getting in on the upswing, not the downslope.”
Government action has played an important role in this. The Coronavirus Aid, Relief, and Economic Security (CARES) Act, the $2.2 trillion stimulus bill signed into law in late March, puts in place protections for homeowners with federally backed mortgages. It prohibits lenders of those types of mortgages from foreclosing on homeowners until at least June 30, and it gives homeowners the right to request forbearance on their mortgages — meaning a pause on paying them — for 180 days. They can also request another 180-day extension.
“Forbearance has stopped defaults; otherwise, we would have seen a wave of defaults,” said Susan Wachter, a professor of real estate at the Wharton School at the University of Pennsylvania.
The Federal Reserve has announced that it will buy unlimited amounts of mortgage-backed securitieswhich has stabilized the housing market as well. That’s helped keep interest rates low, and some homeowners have decided to take advantage and refinance.
“It’s amazing what’s going on, and that is what’s not going on,” Wachter said. “The housing market is holding its own, and that’s because we learned from the last crisis and moved with extraordinary, unprecedented Fed and federal support.”
Marr, from Redfin, pointed out that there may be lingering effects from unemployment and small-business closures that could play out in the next couple of months in the housing market, but he emphasized that right now, most job losses and furloughs have hit renter households. “It’s not hitting the for-sale real estate market as hard as people might think when they see 40 million people have filed for unemployment. The majority of those have been temporary and done by renters, so we’re still seeing the core component of housing demands remain relatively strong,” he said.

Anyone who tells you they know what the future holds is lying

It’s a cliché to say the future is very uncertain, but it really is. What happens next is largely dependent on what happens with the coronavirus — how reopenings play out, whether there’s a resurgence of the coronavirus later this year, if scientists find a treatment or a vaccine. The housing market seems to be on the rebound right now, but what will happen going forward, no one knows.
Even now, things are a bit puzzling, Olsen, from Zillow, admitted. “Sometimes, the behavior is kind of bizarre and you can’t really validate it,” she said. “This is intense volatility and uncertainty.”
Some have predicted that people will start to flee cities for the suburbs and less crowded areas. In the Bay Area in California, for example, Redfin’s data suggests that homebuyers are starting to focus more on Oakland and other suburbs over San Francisco and San Jose. But it’s much too soon to say whether New Yorkers are going to flee to Connecticut en masse, or whether people from Chicago are going to head for Wisconsin and Indiana in droves. And, again, it varies by geography — places like Seattle, Austin, and Denver, which have had strengthening housing markets over the past year, have rebounded relatively quickly.
But by and large, the future of the US economy remains a black box. Some suggest it will bounce back quickly, while others believe we’re in for a long slog. If there is a deep and long recession and if the millions of people who lost their jobs don’t get them back, the situation for the housing market, like so many other parts of the economy, could worsen. Mortgage forbearance for up to a year will certainly help many homeowners, but it’s not forever, and people still may not be able to pay when the year is up.
“The longer the economic activity is reduced, the more damage it will do over time to the housing market,” Pinto said.


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