Existing home sales fell by 8.5 percent in March to a seasonally adjusted annual rate of 5.27 million units, according to the National Association of Realtors. That was the largest decline since 2015 and the slowest sales pace in eleven months. Total transactions, though, were still 0.8 percent above the year-ago level, and the median existing home sales price rose to $280,600, just below the record high. Prices increased in every region of the country last month, not surprising as it took only 29 days for the typical property to sell in March, down from 36 days in February. To be fair, the April report should look a lot worse because most of the coronavirus-related disruptions did not really ramp up until the second half of March. However, anyone expecting to see the kind of price declines that occurred after the housing bubble burst over a decade ago is likely to be disappointed. For example, the proportion of transactions in March that involved investors, second home buyers, and foreclosures was near the lowest level of the business cycle. This suggests that speculators are not the main driver of sales currently, the opposite of what was happening in 2005. Further, during the housing bubble inventory was at an all-time high but today supply is extremely low. In fact, last month was the lowest March on record in terms of the number of homes for sale.
The unprecedented number of job losses that occurred across the country due to the lockdowns will of course damage demand, but it is going to take a substantial and rapid increase in supply to meaningfully pull the median home price down any time soon. None of this means there will not be deals, but again average price declines comparable to the Great Recession are unlikely since the “typical” homeowner should not have an urgent need to sell. Indeed, unlike during the housing bubble, homeowners are now much less levered and have a significant amount of home equity that they can tap into. The government’s multi-trillion dollar coronavirus relief packages have also provided direct financial payments to Americans to help them stay current on their mortgage payments and other monthly bills, and legislation at both the federal and state level has created a foreclosure moratorium and a right to forbearance for many homeowners experiencing a financial hardship due to COVID-19. Moreover, even for the foreclosures that are still allowed to occur, the process can be quite lengthy, so any resulting influx of supply would probably not even show up until 2021. Another thing to consider is that job losses recently have predominately occurred in low-pay sectors, i.e. people more likely to rent than buy. To begin really affecting supply the coronavirus lockdowns would therefore have to last a lot longer so that medium- and high-income occupations start to get hit on a larger scale. Altogether, the headline sales figures over the next few months are likely to remain terrible, but the inventory and price data will be much more revealing about the actual strength of the important residential housing market, and how quickly it could bounce back after this crisis eventually fades.
Sources: Econoday, NAR