This spring home-buying season is anything but normal. What traditionally has been known as the busiest season for buying and selling homes has been upended by COVID-19.
The pandemic has spurred concerns about people entering homes and job security, all while potential buyers are hearing that interest rates are lower than ever but are being met with extremely tight credit restrictions. At the same time, a growing number of borrowers are filing forbearance requests.
Despite the list of evolving challenges, one thing that is still true this buying season is that there’s a lot of pent-up demand. Although some of the conventional thinking on what makes now a good time to buy still remains true, there are new factors for home shoppers to consider, especially since the last recession was drastically different than this one.
This is particularly important for the largest group of first-time homebuyers – Millennials. Ralph McLaughlin, chief economist and senior vice president of analytics at Haus, explained that young households are going to be the most susceptible to recency bias when it comes to recessions.
“They basically only went through one, the Great Recession, and that sample size of one just happens to be the worst economy for the housing market since the Great Depression,” said McLaughlin. “It’s easy to look back and almost be triggered from an emotional standpoint.” But the positive news is that while the housing market is not going to get off scot-free, McLaughlin said, “It’s not going to look anything like the Great Recession. That was an anomaly.”
New reports on the housing market predict that the recovery is likely to take the form of a flying W. Both Realtor.com and Haus forecast a W-shaped path forward, with McLaughlin stating that there will “be an initial sharp drop this spring, a noticeable rebound in the summer followed by another dip in the fall, and finally, a stable road to recovery by spring 2021.”
His reasoning for the W comes down to two factors.
“First, we think that there were many homebuyers that had made the decision to sell and buy this spring, which is going to represent pent-up demand that will be released when the economy starts to open up, likely around the summertime,” he said. “However, once that pent-up demand goes away, we think the real steady state of demand will show itself, which is going to be lower than it has been over the last six/seven years, and that will lead to another drop in the fall after most of the repercussions from this pandemic have gone away.”
“The second reason why we think it’s going to be a flying W shape is that there is potential for a spot fire to emerge in the fall from COVID-19 coming back,” said McLaughlin. “We think there’s potential for that to emerge in the fall and is likely to lead to another noticeable drop in the housing market before a full recovery at this time next year.”
This wouldn’t be the first time the nation experienced a W-shaped recovery. The last example of this was the recession that came after the 1918 pandemic that was a result of World War I and the Spanish flu. However, McLaughlin added that this time around the recovery is not likely to be a wide W but instead a very narrow W.
National vs. regional
The narrative on whether or not to buy a home and timing the market looks different at the regional level compared to the entire nation. As McLaughlin explained it, “There is no U.S. housing market. It is a collection of hundreds of small regional markets, not one big market, and every region is unique.”
The most obvious difference right now is the disproportionate impact on housing markets in the areas hardest hit by the pandemic, which includes states like Florida and Nevada that are reliant on tourism. McLaughlin said that the “multiplier effect” of those sectors will cause other sectors within their own regional economies to be hit harder and will eventually translate into lower housing demand.
For other markets, like the Dallas metroplex, the outlook for the housing market looks positive for potential buyers. According to Michael Cooksey, executive managing director of production for Addison, Texas-based Mid America Mortgage, markets always matter.
“Take Dallas, or Texas in general, for example,” he said. “We’ve had businesses moving into Texas for the last several years so our local economy is very strong. Because of that, even with all the things going on right now, we’re still seeing a boom in real estate. I’m still seeing significant purchase contracts coming into our branch so there’s not really been much of a slowdown.”
Cooksey added, “There seems to be more buyers in the market right now than there are sellers, and while there is a little bit of a shortage of inventory due to COVID-19, we are quite confident that we’ll see a significant amount of listings hitting the market as more stay-at-home orders start to expire over the next few weeks.”
Also commenting on the state of housing stock, Paul Marquis, a Kansas City, Mo.-based branch manager with Mortgage Solutions Financial, said, “Spring has always been the high season for the housing market. This year with unprecedented challenges facing all aspects of real-estate transactions, the quantity of homes on the market will play in the favor of the brave.”
Ultimately, when it comes to whether or not someone should buy a home right now, McLaughlin’s answer is that it depends on your life circumstances.
For starters, if someone is looking for their perfect home, chances are slim they’ll find it. “If you’re trying to get your dream home, you want a choice. You want to see as many homes on the shelf as possible in order to best match your preferences. That’s not what’s happening now,” he said.
On the other hand, he added that if you’re out there trying to get a bargain, now might not be a bad time to go out and buy a house. However, people shouldn’t expect to find Great Recession-like deals on homes. Plus, if buyers are planning on staying in the house for seven to 10 years and are based in a major U.S. market, McLaughlin said that the deal over a 10-year period makes such a small difference in their overall net worth.
Cooksey added a similar location caveat, stating, “If you were looking to buy in markets where you had very little industry or where local industries were the ones mostly affected by COVID-19 and the economic downturn, that could definitely change my opinion on it being a strong buy.”
But if that’s not applicable to their area, Cooksey advised that home shoppers should “make sure they are utilizing a professional real estate agent in making their decision to buy so that the agent can help them determine the true market value of the homes they are considering in case there is anything happening within those neighborhoods that can help them formulate a better offer.”
Overall, the one factor that many buyers look at – home prices – are still sitting at record highs. McLaughlin’s prediction even highlighted that Haus is not forecasting national price declines beyond a slight dip this spring.
For people still on the fence, Marquis said that the one thing that’s important to understand right now is that “now is the time for confidence.”
“Make strong, well-informed choices and execute them,” he said. “When we rebound from this down turn, make sure you are at the head of the pack and don’t let fear be your guide.”