Checking in on the second spring market in the age of COVID
A year ago at this time, the real estate and mortgage markets were just starting to thaw out after being put in the deep freeze by the COVID-19 pandemic. For about a month and a half, starting in mid-March 2020, home sales were nearly stalled as no buyer was interested in going to an open house and no seller wanted to invite strangers into their homes.
As you know, things have improved in the real estate world since then, with many people deciding that if they’re going to be spending more time at home and less time at work, they needed to do that in a home that was better suited for their new work—and lifestyle. And we thought that we’d picked up on the market trends that were establishing, or reestablishing, themselves and made our predictions for the spring.
Halfway through the season is a good time to ask, how did we do?
Our Prediction: Rates slowly inch up
We noticed indicators that suggested that mortgage rates would start to slowly go up, but not too quickly because the Fed was set on keeping their benchmark rate at or near zero for the foreseeable future. But rates have shot up a little faster than we thought.
From the week ending February 18th to the week ending the 25th, the average mortgage rate jumped almost .2 percentage points from 2.81% to 2.97%. Shortly after that, rates went above 3% for the first time since July, and they haven’t gone back down since.
So, in theory, we got this right, but it happened so quickly, that it seemed like we hadn’t. What had been prime refinance territory for many homeowners changed seemingly overnight.
Our Prediction: Low inventory drives prices up
The inventory of homes for sale has been low for a long time. Indeed, this is an issue that we’ve been facing since before the pandemic. And this lack of homes on the market has been driving prices up.
That’s continued this spring. We noted in our prediction article that new construction could help bring prices down by adding to the inventory of homes for sale, but that it wouldn’t have an effect for months. Prices have stayed high, making homes unaffordable for many Americans.
“Home affordability is weakening,” says Lawrence Yun. Chief economist for the National Association of Realtors®. “Various stimulus packages are expected, and they will indeed help, but an increase in inventory is the best way to address surging home costs.”
Unfortunately for many looking to buy, we got this one right.
Our Prediction: It’s a great time to sell
The combination of a low supply of homes for sale, and high demand fueled by low rates, seemed to make it a perfect storm for those looking to sell their homes. In fact, the average home price in the U.S. hit a record high during the last week of March.
Homes are now more likely to sell above their asking price than anyone can remember. Redfin reported that the competition for homes has reached such a frenzy that 36% of homes sold recently went for more than their asking price. That was fueled by a 16% drop in new listings, again a sign of the effect of low inventory on the market.
We definitely got this one right.
However, one factor to keep an eye on during this hot market is that homebuyers seem to be losing enthusiasm as both home prices and mortgage rates have been trending up. Mortgage applications have declined throughout March.
Our Prediction: Things start to return to normal
Well, what we actually predicted was that the normal seasonal patterns of the real estate market would start to re-establish themselves. But we based that on the rising availability of vaccines and businesses and schools opening up. All of those indicators are trending in the right direction.
With the Biden administration’s goal of 100 million vaccines delivered in 100 days now doubled, more and more people ought to feel comfortable returning to some semblance of normal over the coming months. And that will be good news for real estate.
“I still expect this year’s sales to be ahead of last year’s, and with more COVID-19 vaccinations being distributed and available to larger shares of the population, the nation is on the cusp of returning to a sense of normalcy,” says Yun. “Many Americans have been saving money and there’s a strong possibility that once the country fully reopens, those reserves will be unleashed on the economy.”
It’s too early to tell how quickly everyday life and the buying and selling of homes will return to normal. But there’s reason to hope that it will. And just like every other spring, we’re all looking forward to sunnier days ahead.
*Guaranteed Rate does not provide tax advice. Please contact your tax adviser for any tax related questions.