Based on CoreLogic’s latest Home Equity Report for the first quarter of 2020, U.S. homeowners with mortgages (which account for roughly 63% of all properties) have seen their equity increase by 6.5% year over year, representing a gain of $590 billion since the first quarter of 2019. In the latter half of the first quarter of 2020, the coronavirus (COVID-19) began to spread across the country, with an immediate economic impact not fully realized until the end of March. As the pandemic continued to unfold and shelter-in-place orders were extended, unemployment rates increased within a few weeks and left many homeowners scrambling to cover the mortgage payment. However, home prices continued to rise, which added to borrower equity through March.
IMPACT OF THE PANDEMIC ON REAL ESTATE
According to Redfin, the impact of coronavirus shutdowns on homebuyer demand has been short and muted, but the economic recovery will disproportionately benefit those who were already economically advantaged. With record-low interest rates and relative job security despite the recession, higher-income homebuyers are already coming back into the housing market. Since the shutdowns began in Mid-March 2020, the trend that has been noticed in homebuying demand is an exacerbation of the inequality in the housing market over the past decade. May’s home value growth slowdown was widespread, hitting 27 of the 35 largest U.S. metros. Home value growth slowed the most over April in a mix of the most expensive areas (San Francisco, San Jose, Los Angeles and Seattle), which has the hottest markets (Phoenix, Columbus and Indianapolis) and metros in states with a relatively high number of COVID-19 cases (Detroit and Pittsburgh). Homebuyers returned to the market earlier than might have been expected given the state of the economy, finding a market starved for inventory because of seller uncertainty. This improved demand has supported home prices and appears to have given sellers a confidence boost as new listings have slowly picked up.
PENDING HOME SALE INDEX
According to the National Association of Realtors, U.S. pending home sales mounted a record comeback in May 2020, seeing encouraging contract activity after two previous months of declines brought on by the coronavirus pandemic. Every major region recorded an increase in month-over-month pending home sales transactions, while the South also experienced a year-over-year increase in pending transactions. The Pending Home Sales Index (PHSI), a forward-looking indicator of home sales based on contract signings, rose 44.3% to 99.6% in May 2020, chronicling the highest month-over-month gain in the index since NAR started this series in January 2001. This has been a spectacular recovery for contract signings and goes to show the resiliency of American consumers and their evergreen desire for homeownership. This bounce-back also speaks to how the housing sector could lead the way for a broader economic recovery.
FORECASTS ON REAL ESTATE
Based on Zillow’s latest May 2020 Real Estate Market Report, U.S. home values may decline in the second half of the year. According to the Zillow Home Value Index, the typical home value in the U.S. is $251,598, up 4.3% year over year- a small acceleration from April’s 4.2% year over year. But by more recent measures the growth rate has begun to slow. In April 2020, home values grew 0.41% month over month. In May, that slowed to 0.35%, the biggest one-month slowdown since March 2019 and a possible indicator that the market is headed for home value declines in the coming months. The next question housing will face whether this growth can continue after demand built up during housing’s brief pause in the pandemic’s early days runs its course. It is likely housing will feel the broader economy’s downturn eventually, though to a mild degree, and home values will fall in the coming months.