Like most areas of the economy, the housing market ahead of the coronavirus outbreak appeared healthy and even showed signs of gaining momentum. For example, existing home sales jumped by 6.5 percent in February to a seasonally adjusted annual rate of 5.77 million units, according to the National Association of Realtors, a 13-year high. Gauges of future construction activity also looked encouraging last month, as single-family building permits rose to the best level since 2007 (see below). Lawrence Yun, NAR’s chief economist, attributed the recent strength in the housing market to “incredibly low mortgage rates and the steady release of a sizable pent-up housing demand.” Going forward, mortgage rates are likely to remain historically low and many people who planned on purchasing a home may still intend to do so, but the COVID-19 pandemic now places a few big obstacles in the way.
For starters, in states like New York and California where people have been ordered to stay at home, anyone who wants to go out looking for a house to buy may not be able to do so, and completing inspections and appraisals will also be more difficult. This could essentially grind the real estate market to a halt in these areas until the restrictions are lifted. Even in other states without shelter-at-home orders, the general economic uncertainty now looming over the nation may cause some would-be homebuyers to put such plans on hold for the time being. Refinancings, though, should still occur as many owners take advantage of the Federal Reserve’s latest round of easing to lower their monthly expenses. Some owners may also dip into their home equity (which there is a lot more of now compared to when the housing bubble burst) to help weather potential economic hardships in the near-term. Additional assistance for the overall real estate market was provided on Monday when the U.S. FHFA directed Fannie Mae and Freddie Mac to grant flexibilities for appraisal and employment verifications. Also of note, mortgage rates actually rose last week as lenders struggled to cope with the spike in applications, but other recent Fed actions should help mortgage rates drift back lower in the coming weeks.
Sources: Econoday, NAR, U.S. DoC, U.S. FHFA, FRBSL