Question from Robert in AZ: Hi Brian. My wife and I are interested in both selling our existing home and buying a larger home this summer in a neighborhood with a higher quality school system. We haven’t taken any action yet because we’ve been hunkered down for the past two months. What should we be doing to complete these two big transactions before the new school year starts?
Answer: Hello Robert. If we’ve ever seen a confusing market, this is it as we near summertime. We all know the economy is reopening but none of us have much of an idea what this will mean to the summer housing market. Traditionally, the summer is strong but a little slower than the spring market as more people go on vacations and spend the weekends at the beach. But vacations and beaches aren’t expected to have as strong of a draw this particular summer. That might leave buyers with more time for house hunting. However, that is also only one layer of uncertainty.
Across the board, all major metrics of the spring market showed a decline. Sources like Realtor.com and Zillow show that sales of homes have declined by about 15% so far in 2020. But most of the decline took place during April. February numbers were healthy before the economic upheaval and March numbers included many deals that were already in the pipeline. We won’t see May numbers for a couple of more weeks. That leaves almost all of the slow down limited to the April time frame as a result of the great shut down.
With the limited information available, it appears that some aggressive buyers were expecting prices to decrease and waited to make offers after the discounts to affect. Those discounts never materialized. Average home prices were up 8% in March compared to a year ago. The rate of price increases slowed in April but did go up slightly by 0.6%. At the same time, the National Association of Realtors reports a 48% decrease in homebuyer interest. What also happened is the inventory of houses available for sale shrank considerably during March and April. National inventory declined by 15.3% year-over-year. In a normal year, spring listings would increase but this year new listings declined 44.1% compared to the spring of 2019. Also, new construction is much lower compared to last year. Overall, both the buyer and seller sectors of the market took time off during March and April while everyone waited to see what would happen next.
All things considered, we can expect a short-term bump in listings and sales for late summer and early fall due to pent up buyer demand, less pandemic fear, and continuing low mortgage rates. Surprisingly, in another month or so the market might resume very close to where it left off. Probably the biggest remaining unknown is how healthy buyers will be after the financial shock they have gone through. We all know that unemployment is skyrocketing but in some cases, people are collecting more in unemployment than they did from their paychecks. There have also been government stimulus checks flowing into people’s bank accounts and the possibility of more stimulus money yet to come. On the flip-side, a lot of rents are not being paid, which indicates financial stress. Some mortgages are also entering forbearance; this could lead to more houses being listed for sale. It’s a very mixed up market. A best-guess is that it will take all of June before the financial picture becomes clearer.
Robert, you might consider also waiting out June to see how all of this continues playing out. Hopefully the picture will be a little clearer by late June. That could leave you a window of opportunity during July, August, and September. That might not fit neatly with your desire to be in a new school system before the school year begins but it is probably a “best fit” with what is going on right now. It also might be your best window of opportunity if the predictions for another COVID-19 outbreak in the fall and winter become reality.
Please add your observations and comments that will help confused buyers and sellers.
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