Inventory has Become the Unintended Consequence | Guest Post

As the virus rampages throughout the nation and the economy attempts to recover, the housing market will be its guiding light, strong, stable and willing to provide financial security to those who participate.

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July 2, 2020

 

 

On June 3rd, economists declared optimistically we were out of the recession before it was formally confirmed we were in one on June 8th. As June ended, COVID-19 cases started spiking in all but three states and economists are once again nervous about whether the initial recovery has enough momentum to push us through however long the virus remains. The job gains we saw in May and June will turn to job losses in July if states shut down their economies and implement strict social distancing measures.

Chairman of the Federal Reserve Jerome Powell warned a House committee at the end of June that greater market actions like Forward Guidance, Asset Purchases and Yield Curve Control may be needed to keep interest rates low and insulate the overall economy. He cautioned lawmakers not to become complacent in dealing with the coronavirus as the current economic stimulus packages are set to expire at the end of July.

A fourth and final COVID-19 stimulus package is expected.

Maybe I’m just speaking for myself, but I’m feeling a little queasy on the roller coaster ride that is 2020. Speaking of rollercoasters, Disney World employees are petitioning to delay the reopening and Governor Polis closed Colorado’s bars and nightclubs after reopening two weeks ago.

Job Gains Amid Dire Forecasts

Recent job numbers continued to show strength. The National Household Jobs Survey and U.S. Bureau of Labor Statistics (BLS) releasing their reports for June surprising the market with 4.8 million new jobs - almost doubling May’s numbers - and unemployment dropped from 13.3 percent to 11.1 percent. 40 percent of the jobs created were in leisure and hospitality. The ADP Private Payroll Employment Report showed 2.3 million new jobs were created, mirroring a similar job trend led by the hospitality and leisure industry.

Small businesses continue to be propped up by the PPP funds, which were just extended another five weeks by the US Government. Locally, Colorado has successfully regained 20 percent of the jobs lost in March and April, with the state’s unemployment rates now hovering at 10.2 percent. Not ideal, but we’re further ahead than many states!

Seeing big numbers on the board should not surprise anyone as the pandemic brought the economy to a screeching halt, which came roaring back to life as businesses were allowed to reopen when we thought we were out of the clutches of COVID-19. While many businesses did survive to the reopening phase, I do not expect many of the same businesses to survive another prolonged shutdown period - even with government assistance.

On the housing front, strong demographics and low-interest rates led the way as mortgage purchase applications continued to show strength year over year, but experienced declines in the past two week over weeks. During a “normal” year, applications fall after May, so the recent declines do not bother me at all considering the strong 18 percent and 15 percent year over year gains are robust and 30-year mortgage rates are still three quarters lower than they were a year ago, giving buyers an additional 10 percent purchasing power.

Metro Denver’s Resilient Housing Market

The resiliency of our Denver Metro buyers is the theme of July’s DMAR Market Trends Report. New Listings were gobbled up as Pending Home Sales show strength growing 16 percent month over month - on top of May’s 115 percent surge. We saw closed homes recover to within 11 percent of 2019’s year-to-date numbers, resulting in a difference of only 3,000 homes sold this year compared to last year. Considering we sell an average of 57,500 homes a year, we’ve recovered to within half a month’s sold homes. The Median Closed Home Price recovered from its slight dip last month, landing at a 4.53 percent gain for our homeowners.

The market gains came at a cost: inventory. We know prices go up when supply is scarce as Months of Inventory dropped from two to one month with the biggest drop in the $1,000,000+ homes going from 9.5 months to 4.36. $300,000 and $400,000 priced homes also saw their months of inventory cut in half as sellers stayed on the sidelines as confident buyers engaged in bidding wars.

To say Active Inventory became scarce is an understatement and with an 11 percent decline month over month and 33 percent year over year - after an almost 20 percent year-over-year drop last month from 2019.

Today’s housing market offers far more for sellers than the future

The Federal Reserve Board wants to keep rates low through 2022, but we will see rates start to turn up if a vaccine is found and the economy improves. My two cents: don’t let your buyers re-sign a year-long lease as interest rates could be headed up and homes will most certainly cost more. Agents, get those sellers moving. Not only does the market need their inventory, but it is also willing to pay premium prices for it and their repurchasing power is strong as long as rates remain low.

As the virus rampages throughout the nation and the economy attempts to recover, the housing market will be its guiding light, strong, stable and willing to provide financial security to those who participate.

Your Partner in Building Wealth through Real Estate,

Nicole Rueth

The Rueth Team of Fairway Independent Mortgage Corporation


The views, opinions and positions expressed within this guest post are those of the author alone and do not necessarily represent those of the Denver Metro Association of REALTORS®. The accuracy, completeness and validity of any statements made within this article are not guaranteed. We accept no liability for any errors, omissions or representations. The copyright of this content belongs to the author and any liability with regards to infringement of intellectual property rights remains with them.

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