While buyer
demand has softened and sales fell 8.5% in March, the supply of homes on the
market is contracting even faster
The economy
is shrinking, businesses are closing and jobs are disappearing due to the
coronavirus pandemic. But in the housing market, prices keep chugging higher.
Home prices
plunged during the last recession after a housing crash caused millions of
families to lose their homes. Home values could start to erode again,
especially when mortgage forbearances end, some economists warn.
But that
hasn’t been the case so far. The median home price rose 8% year-over-year to
$280,600 in March, according to the National Association of Realtors. While
buyer demand has softened and sales fell 8.5% that month from the prior month,
the supply of homes on the market is contracting even faster, recent
preliminary data shows.
“Demand
absolutely just got a kick in the gut, but at the same exact time, so did
supply,” said Skylar Olsen, senior principal economist at Zillow Group Inc.
Homes
typically go under contract a month or two before the contract closes, so the
March NAR data largely reflects purchase decisions made in February or January.
Even by the
end of last month, many sellers were reluctant to cut prices. Only about 4% of
sellers cut their prices in the week ended April 25, down from 5.7% during the
same week last year, according to Realtor.com. ( News Corp, parent of The Wall
Street Journal, operates Realtor.com.)
Some sellers
say they are hanging tough because they believe their homes aren’t moving
because buyers haven’t viewed them in person or are reluctant to make offers
right now, not because the asking price is too high. They are waiting for
stay-at-home orders to ease before deciding whether to lower the price.
“People
really aren’t leaving their homes” to go house-hunting, said Sarah McMurdy, who
listed her Bethesda, Md., house in late March and then opted to temporarily
take it off the market in April due to the pandemic. “We’re not looking to
fire-sale the house. We’re in no rush. We would rather wait this out.”
Real-estate
brokerage Redfin Corp. said its measure of homebuying demand, which tracks
buyer inquiries, was down 15% in the week ended April 26 compared with before
the pandemic struck. Mortgage applications for home purchases around the same
time were down 20% from a year earlier, according to the Mortgage Bankers
Association.
Total
listings of homes for sale, meanwhile, have hit a five-year low, while the
median listing price was up 1% from last year at $308,000, Redfin said.
The housing
market has been undersupplied for years. During the pandemic it may get worse.
There were 1.5 million units for sale at the end of March, NAR said, down 10.2%
from a year earlier. Homeowners are waiting to list their houses, real-estate
agents say, because they have decided not to move or they are worried about
letting buyers into their homes during a pandemic.
Still, some
buyers are hoping for bargains. Haas El Farra and his wife were under contract
to buy a house in Southern California in early March. As the coronavirus
epidemic worsened, they worried they were buying at the top of the market and
asked the seller to lower the price. When the seller refused, they pulled their
bid and decided to keep looking for a better deal.
“Hopefully
something nicer than what we were looking at will come up at an affordable
price,” said Mr. El Farra, a portfolio manager.
Prices in the
Midwest showed the strongest annual growth at 9.7% in March. In the Cincinnati
area, homes are selling for higher than listing price, said Donna Deaton, vice
president at Re/Max Victory in Liberty Township, Ohio. Large companies in the
area are still hiring, she said.
“For the most
part, we’re still [competing against] multiple offers just about on every
single thing,” she said.
Hundreds of
thousands of renters may miss rent payments for May as the coronavirus crisis
enters its third month in the U.S. For smaller landlords, that means facing
their own financial crisis. WSJ’s Jason Bellini reports. Photo: Fadhila Hussein
While many
economists expect home sales to tumble this year, many forecasts call for
prices to climb slightly or hold flat. Mortgage-finance giant Fannie Mae said
in April that it expects the median existing-home price to tick up to $275,000
this year from $272,000 last year. Capital Economics forecasts average home
prices this year will fall 3% compared with last year. Zillow said Monday that
home prices are likely to drop 2% to 3% from previous levels by the end of the
year and recover in 2021.
In a forecast
released Tuesday, housing-data provider CoreLogic called for nationwide home
prices to rise 0.5% between March 2020 and March 2021. CoreLogic forecast
annual price declines in some cities including Houston, Miami and Las Vegas.
A major
uncertainty is whether mortgage-forbearance policies will prevent a wave of
distressed sales. More than 7% of mortgages were in forbearance in the week
ended April 30, according to mortgage-data company Black Knight Inc., and some
homeowners can get forbearance for up to a year. But homeowners could struggle
to make payments after the forbearance period ends.
“In the next
12 months it’s hard to anticipate price declines because of the mortgage
forbearance in place,” said Lawrence Yun, NAR’s chief economist. “You would
have to see continuing job losses for a prolonged period leading to
foreclosures, and even then we may not have oversupply.”
Write to
Nicole Friedman at nicole.friedman@wsj.com.
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