With the spread of the Coronavirus seemingly slowing down in the past week, the housing market is also offering some glimpses of hope as pending sales remained on the rise and more properties were added to the market. While the impact associated with Covid-19 will linger for the rest of 2020 and beyond, signs of improvement are encouraging and are needed to help us get through this challenging time.
- Reopening California: Governor Newsom announced that California will begin easing Coronavirus closures as early as today May 8th. Retail businesses that will reopen with modifications will include places such as bookstores, clothing shops, toy stores and sporting good stores, as well as music shops and florists. Malls, offices, and sit-down services in restaurants will not be included in this phase of reopening. Detailed guidelines about the reopening were released on May 7, 2020.
- Jobless Claims Surge Passed 30 million: 3.8 million American workers lost their jobs and filed for unemployment last week, bringing the cumulative total to 30.3 million in a month and a half since the statewide stay-at-order was implemented. The number of new claims for unemployment insurance, however, has declined for four consecutive weeks. Despite the slowdown in job losses, there will likely be millions of workers filing for unemployment in the coming weeks, as a big part of the economy remained closed.At the state level, California’s unemployment insurance claims have reached 4.1 million since March 15.
- Mortgage Rates Hit All-Time Low: According to Freddie Mac, 30-year fixed rate mortgage averaged 3.23 percent for the week ending April 30, 2020, down from the previous week when it averaged 3.33 percent, and a decline from 4.14 percent a year ago. It was the lowest level in Freddie Mac’s survey’s history which dates back to 1971. Record low rates have been driving higher refinance activity in recent weeks and have provided some well-needed support to housing demand from their low levels in mid-April.
- Market Sentiment Differs between Buying and Selling: With mortgage rates reaching an all-time low, more consumers believe it is a good time to buy than to sell. According to C.A.R.’s monthly consumer sentiment survey, 31 percent of the respondents in May 2020 believe it is a good time to buy, an increase from 28 percent in April 2020, and an increase from 22 percent in May 2019. Those who believe it is a good time to sell, however, remained near the recent low of 29 percent, a slight increase from 26 percent in April 2020 but a sharp decline from May 2019’s 45 percent.
- Closed Sales Registered First Gain in Seven Weeks: While sales of existing single-family homes remained significantly below last year’s level as the statewide shut down continued, California recorded its first weekly gain in home sales since mid-March. Closed sales for the week ending May 1 were up slightly by 0.9 percent from the week before, after dropping six weeks in a row. With pending sales beginning to rise in mid-April, closed sales may have reached their bottom and could climb further in coming weeks.
- New Listings Continued to Rise: More properties were listed on multiple listing services (MLS) in California as new active listings surged in the week ending May 1, 2020, jumping 18.6 percent from the previous week. The increase was the third weekly gain in a row and the number of listings added was the highest since the shutdown. The rising trend of new housing supply is a sign that more home sellers are feeling comfortable putting their properties on the MLS again, as market participants slowly adapt to the new normal.
- Solid Increase in Mortgage Applications Offers Hope: Mortgage applications inched up in the week ending May 1, 2020, with the Purchase index increasing modestly from the prior week, according to the Mortgage Bankers Association’s latest weekly survey. The number of purchase applications in California rose for the fourth consecutive week, with a week-to-week gain of 10.1 percent.The strong increase in purchase loans was encouraging, especially since it followed a 17.1 percent surge in the week prior.While the state continued to drop more than 30 percent from last year, the rate of decline has improved from early April when the number of purchase applications fell nearly 50 percent on a year-over-year basis.
- Showings Moving Closer to Pre Covid-19 Level: Real estate showings continue to improve in California since they bottomed out in late March. While the number of showings is still down from earlier this year before the spread of Covid-19, there were more showings last week compared to the week before. This provides evidence that market participants are slowly adjusting to the stay-at-home environment and many are learning to conduct real estate business under the new normal circumstances.
- 3.8 Million Homeowners in Forbearance: The share of loans now in forbearance increased to 7.54 percent in the week ending April 26, an increase from 6.99 percent in the prior week based on a Mortgage Bankers Association’s (MBA) survey. In comparison, only 0.25 percent of all loans were in forbearance in the first week of March. According to MBA’s calculations, 3.8 million homeowners are now on a forbearance plan.With more than 30 million Americans filing for unemployment insurance since mid-March, the share of loans in forbearance will continue to grow in the coming weeks as the job market remains in distress.
- NAR Projects Drop in Sales but Gain in Price in 2020: The latest quarterly outlook released by the National Association of REALTORS® (NAR) suggests a double-digit loss in home sales in 2020, while prices will inch up slightly for the year. With U.S. economic growth falling 4.5 percent from 2019 and the unemployment rate reaching 13 percent, existing home sales are expected to fall to 4.62 million in 2020, a 13.5 percent decline from 5.34 million in 2019. Home sales are expected to bounce back in 2021 to 5.3 million, a 14.7 percent increase from 2020. Home prices will continue to rise this year and next, with the national median price climbing 1.3 percent to $275,300 in 2020, and increasing 1.7 percent to $280,000 in 2021.
California is expected to enter phase 2 of the reopening plan this week, and the state will gradually begin to resume some economic activity in the weeks to follow. While there are some indications that suggest the economy and the market may have hit the bottom and are slowly climbing back to normalcy, it is still too soon to say if we are on track to recovery, let alone how long the recovery will take. This is unchartered territory for most – if not all- of us, and there are many uncertainties and unknowns that could change the outcome. We are far from being out of the woods, but there are positive signs that suggest the market is in a better shape than a few weeks ago.