What a Few Strong Indicators Tell Us About the State of the Housing Market During COVID-19

What a Few Strong Indicators Tell Us About the State of the Housing Market During COVID-19

It seems like just yesterday we were planning for a typical spring market. We even anticipated a stronger than usual start with favorable interest rates and inventory picking up in various regions. Then, the coronavirus entered the US and threw us all into uncharted territory.

Yet, it didn’t leave us without our usual market clues to help us to navigate the new landscape. There are still several key indicators that can guide us in predicting what the housing market may look like during, and even after, COVID-19. Let’s take a high-level view at each one to share with you what we see as potential trends in the housing market.

New Home Sales Trends

First, let’s take a look at new home sales. This indicator measures signed contracts on new homes. Although a 22% drop was expected, new home sales were actually up .6% in April. In terms of home prices, the median home price was down from $339,000 to $309,900 – however, what this shows is that lower priced offerings were put out there. It doesn’t necessarily mean that home prices were lower. Looking at volume, there were 325,000 new homes for sale in April. That is down from 333,000 homes for sale in March.

Pending Home Sales

Although we did see new home sales in April slightly higher, Pending Home Sales – which measures signed contracts on existing homes and is a good leading indicator for Existing Home Sales – were down almost 22%. That equates to being down 34% year over year.

Mortgage Data and Interest Rates

The Mortgage Bankers Association released their mortgage application data for last week, showing that overall application volume was up 3% from the previous week. Additionally, purchases were up for the 6th straight week.

Since that first week, applications to purchase a home rose a solid 9%, putting them up 9% higher than this time last year.

Refinances were flat, but are still up 176% year over year, although this is down from 200% overall. Even still, refinances made up the majority of applications, totaling 62.6%, down from 64.3%. Interest rates increased slightly from 3.41% to 3.42%.

We’ve heard a lot of forbearance lately as part of the recent CARES Act. Currently, there are approximately 4.2 million mortgages in forbearance, representing 8.4% of mortgages. However, there is some good news here. First, the increase in numbers are slowly significantly and secondly, roughly 40% of those in forbearance are making payments.

Case-Shiller Home Price Index

We’ve talked before about the Case-Shiller Home Price Index. The Index, which is considered the “gold standard” for appreciation has two indexes of note: The National Index and the 20-city Index. Back in our February newsletter, we focused on the 20-city Index. While the 20-city Index is a value-weighted average of the 20 major metro area indices, including Boston, San Francisco, New York and other major metropolitan areas, the National Index covers all nine US Census divisions.

In March, the National Index reported a 4.4% annual gain, which was an increase from the 4.2% reported in February. The 20-city Index increased to 3.9% in March from 3.5% in February on a year over year basis.

Although these statistics are from March, it shows that the housing market was accelerating prior to COVID-19 and this provides a cushion for housing on a year over year basis.

Bottom Line: Coronavirus Hasn’t Completely Cooled a Hot Market

As we’ve said before, the indexes and other key economic indicators are important for us to consider, but they provide just one snapshot of the market. For an area like Boston, the recipe of increasing population, family income growth, low mortgage rates and limited inventory also impact market conditions. It may not have been the spring market that we thought it would be, but there are still many positive indications that we are navigating our way through this pandemic and staying the course on an upward trajectory for years to come. As the National Association of Realtors has stated, “While coronavirus mitigation efforts have disrupted contract signings, the real estate industry is ‘hot’ in affordable price points with the wide prevalence of bidding wars for the limited inventory.”