6 Real estate trends for fall
The coronavirus crisis has brought “unprecedented” changes.The U.S. economy has experienced a record jump in unemployment, record-low mortgage rates and a whipsawing stock market. All of that leaves the housing market in uncharted waters.
“The biggest challenge is just overall uncertainty,” said Michael Franco, head of mortgage firm SitusAMC. “Where is the economy headed? How is the government going to play it? Has unemployment peaked?”
With the caveat that this crisis has perplexed nearly everyone who has tried to predict what’s next, here are trends for the housing market in 2020′s third quarter.
1. Home prices are holding upWhen the U.S. economy fell into recession, many feared the housing market would follow. Instead, home values have remained strong. Nationally, the median price of existing homes sold in May rose 2.3% compared with May 2019, the National Association of Realtors reports.
“The prediction that inventory was going to rise, panic selling was going to take over, causing prices to fall – the results have been the exact opposite of that,” said Bob Hamrick, head of Coldwell Banker Premier Realty in Las Vegas.
There were 3.9 million sales of existing homes in May, down from 5.3 million in May 2020, but many homeowners delayed putting their homes on the market. As a result, there’s strong demand for the comparatively few homes that are on the market.
“We’re seeing so much pent-up demand,” said Mike Miedler, president of the Century 21 network of brokerages.“Our July numbers are really just exploding.”
Federal stimulus has been crucial to propping up the housing market. The largesse has included unusually generous unemployment benefits and mortgage forbearance that allows borrowers to skip payments for up to a year. The Federal Reserve has stepped up its purchases of mortgage-backed securities, a move that has helped to push mortgage rates to new lows.
2. LocationThe coronavirus hit hard in Manhattan, the nation’s densest living quarters, leading many commentators to predict only the hardiest urban dwellers would keep living in high-rises and commuting on subways. Many others would move to the ’burbs.
Around the country, real estate brokers and lenders report strong buyer interest in suburban neighborhoods, and only tepid activity in the densely populated city centers that had been hot over the past decade.
In the early days of the pandemic, urban dwellers – at least those who had the flexibility to move – looked to the suburbs as a way to socially distance. If office workers stop going into offices for good, many could decide they prefer a bigger house in a less-congested neighborhood.
“Remote work has proven to all of us that you can work from anywhere,” said Kristy Fercho, president of mortgage operations at Flagstar Bank in Troy, Michigan.“We may see in the future a migration out of city centers.”
New York, San Francisco and other urban hubs have built economic momentum over decades, and they’re unlikely to lose their appeal altogether. And many tens of millions of jobs are location-based, especially jobs that don’t pay as well.
“I think this is clearly the phenomenon until there’s a vaccine,” said John Peyton, chief executive of Realty Franchise Group, the parent of Century 21, Coldwell Banker, ERA and other brands.
Will the migration become permanent? Franco of SitusAMC is skeptical.
“Yes, there are some folks who can afford to move out of the city to larger homes,” he said.“But that’s not the majority of people who live in cities.”
3. Record-low rates here to stayThe average 30-year fixed-rate mortgage cost just 3.31% (including points) as of mid-July, according to Bankrate’s national survey of lenders. Many economists expect mortgage rates to remain low, and possibly trend lower.
“Everyone is forecasting rates are going stay like this this year and all the way through the next,” said Mark Fleming, chief economist at title insurer First American Financial.
Low rates increase buyers’ purchasing power, but also drive up home prices. Meanwhile, lenders are flooded with demand from homeowners looking to refinance.
Low rates are here to stay, said Michael Becker, branch manager at Sierra Pacific Mortgage in White Marsh, Maryland.
“Every time rates have looked like they might start rising over the last couple weeks, stories about COVID-19′s re-emergence reverse that trend,” Becker said.
4. Home shopping going virtualSince mid-March, Realtors have been telling tales of consumers never setting foot in the home they’re buying. Such sight-unseen deals are made possible in part by virtual tours of properties for sale.
Jim Weix, broker associate at Keyes Co. Realtors in Stuart, Florida, said buyers increasingly are flocking to 3D tours and virtual walk-throughs instead of in-person visits.
Weix recently sold a Florida home to a New Jersey couple who hadn’t visited the property. They worried that if they flew to Florida to visit the home, they’d be forced to quarantine for two weeks when they returned home.
“As much of a pain in the butt as the pandemic has been, it has forced the real estate industry to invest in technology,” Weix said.
5. Millennials entering prime home-buying yearsThere’s a litany of reasons why Americans age 24 to 39 are not buying like their parents did at the same age. Record student debt is one issue. And older millennials entered the job market during the hangover of the Great Recession, a reality that depressed their earnings.
But some see a boom in home-buying by millennials in coming years. First American’s Fleming said millennials want to buy homes and are poised to jump into the housing market.
“This is the year that the peak of the distribution of millennials hits 30,” Fleming said.“We’re right in the thick of that millennial cohort transitioning into those homeownership-demanding years. That’s a long-run tailwind that will last for many more years.”
6. Virtual Mortgage processWith social distancing the new rule, the lending industry suddenly embraced such practices as notarizing signatures remotely rather than in person. SitusAMC’s Franco said the pandemic provided a “kick start” for processes that long were technically possible but hadn’t been adopted by the industry or approved by regulators.
“It took a long time for remote notarization to get accepted,” he said.“Then in a two-week period of time, states that had taken years to approve it suddenly were approving it on a conditional basis.”
The virtual trend means loans are likely to close more quickly, Loomie says – with the caveat that the current flood of refinance applications has created a backlog.