Whose Market Is It? | Guest Post
The real estate market is wiping the sleep from its eyes as public health guidelines transition from stay-at-home to safer-at-home. Just as businesses are reopening, the heart-wrenching racial injustice protests have engulfed nearly every city in America.
2020 has been a year of historical proportions (what else could possibly happen?) and it’s changed the real estate market. Buyers and sellers alike are no longer only asking, “Do we love this home,” but are now asking questions like, “Is it big enough to work from home?” “Does it provide opportunity and space for my children to play if schooling at home?” And, ultimately, “Is it safe?” These shifts underline the new buyer psyche. For as much as the market remains a seller’s market, current events are changing buyer behavior which will impact limited inventories.
ShowingTime indicates Colorado’s strong buyer demand is working to reclaim pre-COVID growth, which is now near 2019’s weekly averages. Mortgage purchase applications recovered from their historic 35 percent drop in April to ending May with a full recovery of 9 percent year-over-year gain, up 6 weeks in a row.
Future buyer demand will be compounded by low mortgage rates. This past March 5, 2020, set the record for the lowest interest rates since November 2012. We’ve seen even lower rates in May with a 5-week streak ending at yet another historic low of 3.15 percent with a 0.8 discount.
Meanwhile, sellers remain staunchly opposed to listing more properties further straining the one-sided seller’s market and keeping months of inventory hovering at two months. New listings did appear in May - 49% more month over month at the $300,000 to $499,000 priced homes and 116 percent at the $1,000,000 price point and above - but not enough to balance the market. Pent-up buyer demand drove pending home sale increases in each price category from 75 percent month over month at the $300,000 to $499,000 range homes, to a 145 percent month-over-month increase for $1,000,000 and above.
As overall economic and current events news may fluctuate over the next few weeks, I expect May to be seen as a transition month. Negative numbers should moderate from their April lows with jobless numbers to report 1,800,000 for the last week in May - down nine consecutive weeks. The forecast for May’s unemployment rate is expected to be 19.5 percent up from 14.7 percent in April. Remember, unemployment numbers are counted during the week of the 12th so right before states started reopening. Current estimates for unemployment at the end of May are closer to 15 percent as people began to return to work and more than 80 percent of the unemployment was considered temporary.
As we began reopening, consumer confidence turned a corner as it started to rebound from April’s eight-year low, up 0.9 points. Stronger consumer confidence will lead to more consumer spending, which will drive the nation’s GDP. Positive consumer confidence is great news for both the housing market and overall economy as we rebound from April’s 13.6 percent drop in spending and 33 percent gain in savings. While an increase in consumer saving indicates a fear of the market and less consumer spending, I see opportunity.
The continued housing demand will continue to put pressure on home prices as pending home sales gobble up new inventory, which will put more pressure to increase home prices. Lawrence Yun is expecting national appreciation between 4 and 6 percent by the end of 2020. Realtor.com® is expecting closer to 1 percent. Although DMAR’s median close price in May dropped 0.19 percent, it primarily due to the difficulty of getting Jumbo loans in April and May and more purchases at lower price points and more inventory at the higher end. Year to date median close price is still up 4.82 percent and expected to increase through the summer.
As the real estate giant is awaking from its power nap, everything is telling us that opportunity for stable growth in front of us.
Your Partner in Building Wealth,
The Rueth Team of Fairway Independent Mortgage Corporation
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