We’re in an unprecedented time in the housing market and global economy. The coronavirus pandemic has upended lives and changed the way people work, play and purchase real estate.
With no real historical comparison — and no real way to know what’s going to happen with the disease as the weather cools — it’s trickier than ever to predict what the final quarter of the year will look like. But the course of this pandemic has left enough clues for experts to examine so that they can make some informed predictions about what’s coming.
Demand will remain strong
When states started shutting down in March, home sales nearly screeched to a halt. But that was a temporary reaction as buyers and sellers got their houses in order for the new normal.
Over the summer, the floodgates opened on that pent-up demand and June, July and August saw record-breaking home sales when compared to last year.
“We are witnessing a true V-shaped sales recovery as homebuyers continue their strong return to the housing market,” said Lawrence Yun, the National Association of Realtor’s (NAR) chief economist in a statement about July’s housing data. “Home sellers are seeing their homes go under contract in record time, with nine new contracts for every 10 new listings.”
July saw a 24% increase in home sales from June, and an 8.7% year-over-year increase, according to NAR.
Traditionally, there are more real estate transactions in the spring and summer than during the fall and winter, so it’s likely that the fourth quarter will see a relative decline in the volume of sales, but, the experts said the number of sales should stay relatively high compared with other years, assuming there isn’t another lockdown-inducing COVID surge.
“Generally, in the autumn we do see sales come down after the spring and summer buying season, but this year it looks to be solidly up compared to other autumns,” Yun told Bankrate. “It could be one of the best autumns or even winter months.”
Yun is hardly alone in that view.
“I think that we will see an active fall,” said Jim Gaines, chief economist at the Real Estate Center at Texas A&M University. “I don’t think statistically it’ll be out of whack. It’ll be in whack, to use the technical economic term.” Meaning this fall is likely to see average or above-average home sales, as opposed to the significant dip that happened in the spring.
Expensive cities will likely keep losing ground
With more and more people working remotely, many buyers have newfound flexibility in where they can live.
That means some of the most expensive locales in the country, like New York and San Francisco, are seeing relatively fewer sales and softening prices than their suburbs and other markets.
“Areas of concern where prices may decline are actually the super expensive markets of Manhattan and San Francisco,” Yun said.
This shows how buyers’ preferences may be changing.
“They’re going to have to decide what they want and where they want,” Gaines said. He added that many buyers are increasingly favoring suburbs and exurbs where they can get more space for the same price as they’d pay in a city’s core.
“The high density cities, Houston I know, and Dallas, and Chicago, any of the big cities, they’re all experiencing this kind of thing,” he said.
Yun and Gaines agreed that it’s too early to tell exactly what the current work-from-home policies mean for long-term housing trends, but this could signal the start of a shift toward a permanent upswing in remote work.
“If there’s a silver lining on this pandemic, it’s that it occurred while broadband access was just getting started,” Yun said. More reliable internet makes it easier for people to work from home than it used to be, and the result, he said, is “less interest in city centers, greater interest out in the suburbs.”
If companies continue allowing their employees to work from home long-term, buyers will likely continue to favor spacious homes outside of cities.
The effect of the environment
Some areas currently have a different kind of real estate microclimate, as if the pandemic weren’t enough to shake things up. On the West Coast, where wildfires have further upended lives, the housing market is essentially shut down in some locations.
“There will be a big pause in and near the affected areas. After all clear, a resumption to normal activity could be hindered if insurance premiums rise,” Yun said in a statement.
Beyond the immediate shift in market activity, the pandemic and wildfires are affecting new home construction, too.
“Month-to-month volatility for single-family starts will likely be present in the fall, in part due to supply chain issues, including lumber prices that have increased more than 170% since mid-April,” Robert Dietz, chief economist at the National Association of Home Builders said in a statement. “This scarcity means it is taking longer and costing more to build housing.”
A recent report by the homebuilders found that the spike in lumber has caused the price of an average new single-family home to increase by $16,148 since April.
Even so, Dietz said, demand for new homes remains solid, especially in the suburbs and exurbs.
Prices stay high (and why it may not matter much)
Despite a generally bleak national economic picture, the real estate market has remained a relative bright spot during the pandemic.
Gaines said the reason may be that those most affected by the pandemic-induced downturn were likely to be hourly workers in service industries, and they tend to be renters rather than homeowners.
When it comes to purchasing, the strong real estate sector favors sellers. With fewer homes on the market than usual, there’s more competition over each listing, and that’s driving prices up. The median home rose to $307,000 as of July, according to the National Association of Realtors. That’s up 8.5% year-over-year.
“We have insufficient inventory,” Yun said. “It is down about 20% from one year ago in terms of active listings and the marketplace.”
That means home shoppers need to be ready for potential bidding wars when you find the home you want.
“Multiple offers are becoming more prevalent on lower price and middle-priced starter homes,” Yun said.
He added that it’s important to stick to your budget, but buyers may be able to pay more for a home than they would have a few years ago.
“Home prices are already at an all-time high, but their monthly mortgage payments are lower, because of the low mortgage rates.”
What first-time homebuyers should know
If you’re ready to become a homeowner in the next few months, there are some things you can do to make the process easier for yourself.
Before we dive in, you should know that the housing market is very competitive right now because there are fewer listings than normal for this time of year. Yun said the number of listings is down about 20% compared to this time last year. While that doesn’t mean it’s impossible to get your first home, you should be prepared to be competing against other interested buyers in most areas. Doing a little preparation will make your offer more competitive, and could help you get into your first home faster.
First, it’s best to set your budget so you know what price range you’re targeting for your housing search.
Next, and this is especially important in a competitive seller’s market as Yun said, you should get the ball rolling on your mortgage application. Shop around for lenders and get preapproved. That will show sellers you’re serious and may help you get to closing faster.
Once the financial parts are in order, you’re ready to start shopping around. Working with a Realtor may make the process easier, because they’ll be able to guide you to listings that fit your needs and can help you get your offer in order.
Once your offer is accepted, you can may still be able to negotiate over closing costs, and you should make sure you get the house inspected before you close. Then, get your writing hand warmed up to sign a small mountain of documents, and your new home will really be yours.
Now is (probably) the time
Yes, you’re likely going to face steep competition if you put in an offer, but if you find a house you like, it’s worth it.
Gaines said thanks to low mortgage rates, you’re going to save money in the long run if you buy a house now rather than wait a year or two in the hopes that competition might ebb.
Yun agreed, and said it’s a good idea to be prepared before making an offer.
“Understand that there are other buyers out in the marketplace and competition could be steep,” he said. “Just be prepared for that, get that mortgage approval.”
Yun also said that thanks to low mortgage interest rates, now is a good time to buy a starter house if you can. “The first home might not be the ideal home, but you can always trade up in later years,” he said. “Now may be the ideal time to build some housing equity.”
Looking forward even more
One huge unknown beyond the fall is how the pending end of COVID-related mortgage forbearance will affect the housing market. Millions of homeowners took a pause in mortgage repayment thanks to the CARES Act, but that provision is set to end on Dec. 31. It’s unclear what will happen with foreclosures, but expect to see a spike in these starting early next year. And a possible new administration next year may upend many of the policies and initiatives currently in place.