While experts say it’s still too early to tell how the pandemic and resulting economic meltdown are affecting the housing market’s long-term prospects, no one seems to be advising buyers that better days are ahead.
The new pressure on available homes for sale is coming from sellers pulling their listings and waiting for better days.
And that’s keeping inventory tight and prices rising – though far more slowly than they were before the pandemic’s full force hit the Valley and the nation.
“There’s no way we get through this unscathed. But I don’t think the world will fall apart in the housing market the way it did in the last recession,” Realtor.com’s chief economist Danielle Hale said last week. “We won’t see prices driven down out of necessity because people were forced to sell like before.”
The Cromford Report, which monitors the Valley’s housing market, announced on April 30: “Still no reason to panic about home values.”
A day earlier, it observed, “We are seeing active listing counts fall in a number of cities now, reversing the trend of the last few weeks. It looks as though, despite the weaker demand under present conditions, there will still be no end to the shortage of supply that has been in place for many years.”
The median home list price rose 1.6 percent annually in the week ending April 25 compared with the same week a year ago, according to the most recent national data from realtor.com pulled from the 99 largest metropolitan areas.
Real estate experts have been predicting that price growth would level off or even dip.
Zillow, an online real estate company, predicted two days ago that prices nationwide would fall an average 2-3 percent but rebound quickly in 2021. But it also said that even before the pandemic, some economic indicators suggested prices would not rise as quickly as they did last year.
Realtor.com and other experts have repeatedly insisted recently there’s a major difference between today’s economic meltdown and the 2008 Great Recession where home prices are concerned.
Back then, Realtor.com noted last week, “it seemed like just about anyone could get a mortgage – or two or three. Today, only buyers deemed less of a risk can score a loan. Credit scores need to be higher, debt-to-income ratios need to be lower and lenders verify incomes much more carefully.”
Then too, it noted, “there was a vast oversupply of homes. So, when the market crashed, there simply weren’t enough qualified buyers to purchase them. And with all of the foreclosures going up for sale, a result of bad loans, home prices plummeted.”
The wild card in any longer-range forecast is that no one knows how long it will take the economy to bounce back – and how long the pandemic influences movement in communities.
“Prices are driven by the rules of supply and demand,” Realtor.com said. “On the supply side, there is a record-low inventory of homes on the market, as sellers have been steadily yanking them off. Many don’t want potentially infected strangers walking through their homes and want to wait for the economy to improve so they can fetch top dollar for their properties.
“Others don’t want their homes to linger on the market unsold during a time when fewer transactions are taking place.”
Moreover, even though prices remain high, mortgage rates are continuing a downward trend.
That prompted Robert Dietz, chief economist of the National Association of Home Builders, to say, “I don’t think we’ll see significant price cuts. There’s a lot of young people who want to attain homeownership.”
There will likely be a “sharp decline” in home sales until the threat of the virus and its economic toll have waned, predicted Lawrence Yun, chief economist of the National Association of Realtors, adding sales will pick right back up as soon as things return to some semblance of normalcy. That will also keep prices high.
The luxury market could take the biggest blows, however.
“The higher-priced homes are the ones that are being withdrawn [from the market] more often,” said Frank Nothaft, chief economist of the real estate data firm CoreLogic. “The lower-priced homes continue to be in really strong demand.”
But not everyone has such confidence that home prices will remain strong.
Ken Johnson, a real estate economist at Florida Atlantic University, expects that prices will fall much more along the lines of what many bargain-hunting buyers have been hoping to see. If the economy reopens quickly, prices may decrease only by 5-10 percent, he said.
But if the crisis and stay-at-home orders go on for another 60 to 90 days, he anticipates prices will plummet up to 50 percent as there won’t be many folks shopping for homes.
“I expect sales to dry up. I expect listings to dry up. I expect showings to dry up,” says Johnson. “I hope for the best and fear the worst.”
Despite that gloomy forecast, Realtor.com said there are other forces at work that may keep inventory low – and, consequently, prices relatively high.
Nationally last year, builders put up 900,000 houses, but Realtor.com noted, that a reduced demand “will likely translate to fewer homes being erected in the near future.”
Realtor.com noted, “The majority of Americans are still employed. And mortgage interest rates are at record lows. They’re hovering around 3 percent, unlike the more than 6 percent they were at the beginning of the Great Recession.
Hale said, “Home sellers are strongly resistant to lowering prices and they’d gotten really close to declining, so we see a bounce-back.”
But, she added, “I don’t think this is a return to big price increases.”
“Buyers may still struggle with finding the right home among limited options,” Hale said. “It may feel like, ‘what you see is what you get.’”
But that doesn’t mean the housing market is a bright spot in the economy.
“It’s obvious that the housing market is still struggling in this crisis,” said Realtor.com Senior Economist George Ratiu.
“There’s clearly a disconnect between sellers still active in the market and potential buyers,” Ratiu added. “Homes that were priced for January 2020, when the economy and employment were still growing, are not likely to sell for the same price in the current downturn.”
Given the uncertainty, though, Cromford said the Valley home market may still produce some surprises.
Or it may not.
“In today’s environment,” it said, “everything is uncertain. Perhaps, when they see more listings going under contract, sellers will emerge from the places they have been hiding. Perhaps the number of people losing their jobs will put a cap on how many buyers we see.”
Later in the week, it added, “The trend in sales volumes is still down, but the trends in active listings and listings under contract are starting to look more favorable to sellers.
“The downward momentum over the past week was still strong, but not as strong as the three previous weeks. There are good reasons to think this rapid fall will not continue for too much longer. But how many weeks we have to wait, we cannot say at the moment.”