In March of this year, the economy was largely shut down due to the novel coronavirus. With so many businesses closing their doors and stay-at-home orders in place, the future seemed uncertain. Many were left questioning the viability of the housing market. Prognosticators were expecting a catastrophic collapse of the real estate market. After years of rising home prices, they were expecting home values to plummet as coronavirus took hold of the nation. Along with a halt to the trend of home value appreciation, they expected a decline in the number of market transactions. What’s happened so far and what is now expected to happen to the housing market in the future? 

2020 Housing Market, So Far

March was a dreary time for us all. Early housing market stats for March seemed to be heading towards what so many feared and expected. Things didn’t look good. Nationally, real estate inventory declined by 15.7% from 2019. Inventory in large markets decreased by 17.1%. Compared to March of 2019 that’s a loss of 191,000 listings. Along with a decrease in the number of homes being listed the homes listed at that time saw a reduction in listing price. 15.4% of home listings saw a reduction in listing price. 

As the year has progressed, things have really turned around. Although, inventory is still low nationwide. The market is thriving. According to the National Association of Realtors(NAR), existing home sales increased by 25% this July.  It was the highest sales level since 2006 and the largest monthly increase ever recorded. The prior record for a monthly gain was in June with an increase of 21%. 

The increase in homes being sold is largely due to record breaking low interest rates. The average interest rate on a 30 year fixed rate mortgage has been below 3% since July. The increase in stay-at-home jobs has also created a demand for larger homes. These stay-at-home workers are not as concerned with commute times and are looking for multifunctional housing options. 

Additionally, housing prices increased by 2% between May and July of this year. That’s the largest 2 month increase in house pricing since 1991. By July, 2020 housing prices had actually risen by 6.5% compared to July 2019. Along with selling at a higher price, homes are selling faster. Last year, homes sold in an average of 29 days. As of this July homes are selling at an average pace of just 22 days. Furthermore, 68% of homes sold in less than one months time. That is definitely an impressive start to the year for the housing market. But will it finish strong?

Future Housing Market Expectations

According to experts including Federal Reserve Chairman Jerome Powell, the future of the housing market may be dependent on coronavirus. This year, Americans' confidence in buying and selling houses seemed to be reflective of the number of positive cases.  When positive cases  go up sales go down. When positive cases go down sales go up. What truly will happen with coronavirus and the housing market is yet to be seen. However, we can make some educated predictions in several key areas. 

Interest Rates

Adverse market fees are coming. The Federal Housing Finance Agency(FHFA), which oversees all Fannie Mae and Freddie Mac loans, announced the implementation of adverse market fees. These are set to be implemented in December of this year. These fees will be passed on to the borrower and are expected to increase interest rates on mortgages between 0.125% and 0.25%. Adverse market fees are just one of the reasons interest rates will rise again at the end of 2020 and into 2021. These record low interest rates are not sustainable. 

Housing Inventory and Pricing

The pandemic has created a shortage in certain building materials and is slowing the process of building new homes. Uncertainty due to coronavirus is keeping homeowners from selling their existing homes. If positive cases of coronavirus continue to increase it is unlikely there will be a surge in housing inventory. Strong demand combined with low housing inventory drives up the price of homes. 

However, increases in interest rates are expected to slow housing demand. This is expected to bring more balance back to the booming industry. With less buyers seeking low interest rates and the number of home sales slowing appreciations will slow. This is a good thing as it will keep housing options available at all income levels. 

Bottom Line

Even with low inventory, the housing market is doing better than ever. We expect it to stay that way into 2021. However, record low interest rates may not stay so low. Interest rates and housing prices appear to be as low as they are going to get for the foreseeable future. If you are considering purchasing a new home or even refinancing your loan, the time is now. Peoples Choice Mortgage can help you find the right mortgage for your dream home.