After a shock to the stock market how is real estate holding up?
So much attention has been given to the stock market over the last 90 days that I thought it would be good to review what is happening in the real estate market. During the “Great Recession” of 2007-2009 it was real estate that nearly caused the financial collapse of our nation. Unlike the last recession, real estate was not to blame for the 2020 Coronavirus market meltdown but there is much speculation as to what will happen to the real estate market coming out of the current crisis. Let’s take a look at the data.
With 40 million people out of work the concern is that many of them will not be able to make their mortgage payment. Couple that with the difficulty of showing and viewing homes in the “new normal” environment and we saw a softening of real estate prices. However, the aggressive action on the part of the Federal Reserve has resulted in mortgage rates being at all-time lows.
Homebuyers are starting to come out of coronavirus isolation and are swarming back into the housing market, lured by falling house prices and some of the lowest mortgage rates ever seen. Applications for homebuyer mortgages has been rising for weeks and demand for homes is now higher than it was before the COVID-19 outbreak.
Overall mortgage applications rose 2.7% during the week ending May 22, led by a 9% jump in applications for loans to buy homes as opposed to refinancing. Demand for purchase loans has grown for six straight weeks and has surged 54% since early April, says Joel Kan, the vice president of forecasting for the Mortgage Bankers Association.
“The housing market is continuing its path to recovery as various states reopen, leading to more buyers resuming their home search,” Kan says.
Why are people buying homes right now?
Homebuyers are feeling the wind in their sails from softening prices and low interest rates.
Homebuyers are so motivated that during the week of May 17, demand for houses was 16.5% higher than pre-COVID-19 levels, reports the real estate brokerage Redfin.
“The pandemic has people re-evaluating their lifestyle and their goals. People who were considering a move two or three years down the line are pulling the trigger now,” says Tiffany Aquino, a Redfin agent in Virginia, in a news release.
Plus, two big trends are making the housing market more attractive for homebuyers and are reeling them in.
They’re being drawn to bargain prices for houses. The U.S. Census Bureau reported this week that new homes sold in April at a median price of $309,900, down 8.6% from a year earlier and down 5.2% from the March median selling price of $326,900.
“A 5% monthly drop in new home prices points to builders eager to make deals,” says Zillow economist Matthew Speakman, writing in his blog.
The increase in demand is partially due to mortgage rates being at generational lows.
The Mortgage Bankers Association says its new survey has 30-year fixed-rate mortgages averaging 3.42%, a survey from Mortgage News Daily on Tuesday reported an average rate for those loans of just 3.08%.
And 30-year rates below 3% are already out there — but you have to shop around and know where to look for them.
What about Refinancing?
Refinancing is also red hot right now. Banks are having a hard time keeping up with the demand from borrowers. Refi applications are nearly triple the volume from one year ago. This is a great time to take a look at your current mortgage rate. If you plan to be in your house for several more years, refinancing can be a terrific way to improve your cash flow.