The U.S. housing market started 2020 with a bang, including upticks in home prices and home sales. Then the coronavirus outbreak took hold in early March, leading to an economic slowdown, staggering job losses and uncertainty for millions of homebuyers and sellers across the country.
Looking ahead, here’s what you need to know about how the COVID-19 pandemic will impact the housing market in 2020.
Understanding the pre-COVID-19 U.S. housing market
Before the coronavirus outbreak led to widespread stay-at-home orders, the most recent U.S. housing market data showed the housing market poised for a strong spring homebuying season.
Home sales activity before the coronavirus outbreak
|Data||Month Over Month
(Jan. 2020 to Feb. 2020)
|Year Over Year
(Feb. 2019 to Feb. 2020)
Existing-home sales saw a 7.2% increase from February 2019 to February 2020. There was also a 6.5% increase from January 2020 to February 2020, according to the National Association of Realtors (NAR).
New-home sales increased 14.3% year over year for the same February 2019 to February 2020 window, though there was a 4.4% month-over-month decline from January 2020, according to a joint report from the U.S. Census Bureau and Department of Housing and Urban Development (HUD).
NAR data also show that pending-home sales, which measure signed purchase contracts, rose 9.4% from February 2019 to February 2020, and 2.4% from January 2020 to February 2020.
Home sales and the coronavirus outbreak
The spring homebuying season is already underway, but because of nationwide social-distancing guidelines, it’s not expected to be as robust as industry experts had predicted.
“Home sales will decline significantly,” said Tendayi Kapfidze, LendingTree’s chief economist.
This sentiment is further underscored by data from real estate brokerage Redfin, which show a nearly 150% jump year over year in for-sale homes being taken off the market during the last full week in March 2020.
Will home prices fall?
The drop in home sales doesn’t necessarily mean that home sellers will need to reduce listing prices in order to sell their homes, said Gay Cororaton, a senior economist and director of housing and commercial research at the National Association of Realtors.
“It’s not a question of slashing your prices; I think what’s really holding back buyers right now is the stay-(at)-home/shelter-in-place directive,” Cororaton said, adding that she doesn’t anticipate much of a drop in listing prices in the near term.
Kapfidze agrees: “The market friction is not due to pricing, so lower prices will not necessarily help, but a more attractive price will get more attention as always,” he said.
What about housing inventory?
Housing inventory, or the number of homes available for sale, has been notoriously low for a while. In fact, as of February 2020, inventory is down nearly 10% year over year, dropping from a supply of 3.6 months to a supply of 3.1 months.
Once sellers feel comfortable listing their homes again, though, inventory could spike.
“Purchasing a home is the biggest investment that most people will make, a lot of them … especially for buyers who are buying (a) home as a primary residence, will want to look at the home,” Cororaton said.
In-person showings and open houses are undoubtedly risky in the current environment, but virtual tours can be a viable alternative. Requests for virtual tours led by real estate agents jumped close to 500% during the third week in March, Redfin reported. As of April 9, virtual tours made up one-third of tour requests, compared to just 0.2% at the beginning of March.
Some real estate investors may feel less skittish about buying a home based on a virtual tour, Cororaton said. Investors make up about 15% of the U.S. housing market, she added.
Kapfidze predicts we’ll see an uptick in the number of new homes for sale, since construction is still continuing in some states, but points out there’s uncertainty in the outlook for existing homes.
What to expect if you’re buying or selling a home
Whether you intended to buy or sell a home soon, you’ll probably have to adjust your expectations. Here are some tips to navigate the ongoing effects of the COVID-19 pandemic on the U.S. housing market in 2020:
- Consider making a move during the second half of the year. Cororaton suggests pushing back your buying or selling plans to late summer or fall. For buyers, home prices tend to drop in the winter, making the fourth quarter the best time to buy. Still, inventory is even lower in the colder months, so while there will be less competition, typically there are also fewer homes for sale.
- Expect your closing process to look a little different. Home sales are still happening in some capacity, with the help of digital walk-throughs and remote signings, Kapfidze said. “If you need to be in the market as a buyer or seller, you should proceed as there will still be transactions happening,” he said. “Just be prepared for a different and likely slower process, and be more flexible with your expectations.”
- Take advantage of help, if needed. If you’re a home seller who was planning to pay off your current mortgage as part of an upcoming home sale, and are facing financial hardship due to the coronavirus pandemic, review mortgage relief programs available to struggling homeowners. You may qualify for mortgage forbearance if you’re no longer able to make your monthly payments.
Featured Image Credit: fizkes/iStock.