Could this housing market keep going up?
There is no doubt that Covid-19 or the Corona virus has significantly impacted real estate sales around the world with the United States being no exception. It is proving to be an interesting time for the real estate market, impacting pricing and overall market trends, for both residential real estate and commercial real estate. It is proving to be an interesting time for all types of assets, with real estate in particular, where every city around the nation is experiencing new challenges.
According to a housing forecast study made by Fannie May in April 2020, quarter 1 of 2020 saw an initial start of 1.5 million housing units around the nation, an increase from the previous year during the same time when it was 1,213 in 2019. However, in quarter 2 of 2020, total housing units was 960,000, a significant decrease from quarter 2 of 2019, which was about 1,256,000. The forecast by Fannie May of quarter 3 and 4 of 2020 show similar results, in that, they have a reduced total amount of units available on the market, with quarter 3 and 4 of 2020 at 1,044 and 1,174, compared to 1,282 and 1,441 in quarter 3 and 4 of 2019 respectively.
The differences in housing inventory between 2019 and 2020 is mainly attributed to Corona virus pandemic, reducing home sales around the nation. This is made clearer in the same study by the total amount of homes sales, with the average across all quarters being 6.01 million units sold in each quarter of 2019. The average homes forecasted to be sold in each quarter of 2020 is 5.14 million units, a reduction of about 870,000 units or about 14.4% nationwide.
With a significant reduction in total housing units and a reduction in total home sales compared to 2019, it should also indicate a reduction in home prices as well. But that is not the case, as the Fannie May April 2020 study has shown, the median new home price in 2019 was $319,000 and is projected to be $326,000 throughout 2020. A small increase of $7,000 in home prices sold from 2019 to 2020, could potentially indicate that despite reduced inventory and sales across the nation, it would also indicate that demand slightly outpaces supply.
Many buyers across the nation are taking advantage of historically low mortgages rates of 3.3% (Forecasted to decline further to 3.0% in 2020) and this could also be one of the main driving forces behind home buyers during the pandemic, trying to get the lowest possible rate while at the same time, many sellers are hesitant to sell their home during the pandemic for fear of catching the virus during meeting or showings for example, thus many are delaying the sale of their home until the pandemic subsides.
Another aspect that is not taken into consideration by these studies and metrics are the individuals that were planning on purchasing a home in 2020 and are simply unable to do so anymore due to their financial circumstances. These individuals may no longer qualify for a mortgage due to loss of income, uncertainty in the job market or reduced savings for example, hindering their ability to purchase a home in 2020 and quite possibly in 2021 as well. As the pandemic subsides in some states and resurges in other states, no one is certain where the real estate market is headed in many areas of the country. In parts of Maine with lower inventories and plenty of qualified buyers, prices will continue to rise.