Housing is in a “Medically Induced Coma”
DMAR’s April Market Trends Report highlights the strength of the overall housing and economic market going into what will be known as one of the most surreal experiences you and I have – and, likely, will ever have – in our lifetimes.
Let me first acknowledge the human tragedy of COVID-19. To those who lost loved ones, jobs, financial stability, and so much more; I hope you find the strength to help us all move past this dark chapter in history.
As optimistic I am about the future long-term future of our economy, the significant downturn and its effects will be felt throughout every industry throughout the short-term. The effects will be felt for the long-term in some industries, but I stand convinced the economy will race to normalcy once COVID-19 withdraws and we fully reopen the economy from social isolation.
Pre-COVID-19, the National Economy and Denver Housing Remained Strong
March was a pivot point for the national housing market. The first half of the month continued the incredible momentum we saw in January and February with 13 year highs in sales and housing starts and pending home sales were up 9.4%.
The macro economy’s metrics were positive as well. Unemployment floated at 50+ year lows of 3.5%, the GDP chugged along at 2.10%, incomes were up 0.6%, consumer spending was up 0.2%, inflation was at a safe 1.8%, and national appreciation continued to show strength at 5.2% per FHFA. All solid numbers.
Locally, Denver’s housing market showed strong numbers. As you recall, February ended with a year to date median home price growth of 6.25% and the housing market was on fire before the snow melted, indicating significant pent-up demand.
Economic Shutdown Amid Stay at Home Orders
We know what happened next. On March 13th, a National State of Emergency was declared. On March 15th, no social gatherings of more than 50 people. On March 16th that was reduced to 10 people. On March 19th, the Governor of California ordered everyone to Stay at Home order and, on March 26th, Governor Polis did the same for Colorado. As residents scrambled to buy whatever they could at grocery stores, the economy essentially shut down overnight as gyms, restaurants, bars, and many other local businesses were forced to close their doors, laying off thousands of service industry workers. The real estate industry remained opened as an essential service.
COVID-19’s Impact on March’s Housing Market
March ended with a year to date median home price growth of 6.75%. The average sold price was at $513,526, the first time we’ve been over $500,000 threshold for attached and detached homes. We experienced the highest number of sales for March 2020 with homes valued between $500,000 and $749,000. Interestingly, the highest number of homes that were sold in March 2019 had values of $300,000-$399,000, which I believe might be due to a greater inventory and those aging millennials looking for their second home in the $500-$749k level. More on this later…
We also saw month over month increases in active listings of 19.46%, pending home sales of 8.03%, and closed homes of 12.02%. This spring was poised to record breaking with higher housing inventory to supply pent-up demand we saw in January and February’s market trends data.
The Economy is in a “Medically Induced Coma”
April’s market trends data will show us the full story of COVID-19’s economic impact on housing, since March only showed the initial impact. Colorado’s stay at home order was extended through the end of April, which will impact unemployment, spending, wages, and yes, home buying, despite the federal government’s disaster assistance relief bills expanding social safety net programs.
We all need to remember that COVID-19 will be short-lived. What we are experiencing is not a housing bubble or a natural economic recession. The pandemic is an artificial pause on our otherwise healthy economic growth, and social isolation tactics are what many leading economists are calling “a medically induced coma” on the economy to limit the number of potential victims.
Last week, the number of claims was 3.3 million. The number of jobless claims this week was 6.6M. These record breaking numbers are getting a LOT of attention, and rightfully so. But, we need to focus on the long-term. These job losses aren’t permanent; they’re temporary layoffs so businesses can withstand the short-term financial shock.
Employees will be rehired when doors open and as social isolation orders are removed, and I suspect society will be ready to get out and spend! Unemployment is expected to lower as the laid off are re-hired. As the economy jumps back to a more-natural state, the GDP will rebound from a negative shrinkage of 18.3% in the 2nd quarter to a positive 10.9 % in the 3rd quarter – a huge opportunity for those who are prepared.
When we are allowed to leave our homes and go back to work, people will want to re-engage, go out to eat, see live music and sporting events, go to the gym, buy clothes, and travel… and, boy, I know I’m ready!
What to Watch For Moving Forward
Three economic trends to watch moving forward: interest rates, housing supply, and household demand. Interest rates will be pushed down even further as the federal government reverses the medically induced coma to kick-start the economy as fast as possible.
Housing supply will continue to be tight especially at the lower, affordable, entry-level homes. Nationally, new construction has been short an average of 300,000 homes annually, which will be even less due to COVID-19’s impact on construction workers, supplies, and funding. Locally, a low inventory will continue to lead headlines for the remainder of 2020. Housing starts were down 13% prior to March and nervous home sellers withdrew 761 homes from the market this month.
Lastly, demographics are increasing household demand. In 2008, millennials were still in their 20s living at home with their parents. Now, they are experienced professionals, they’re having their own families, and many are looking to purchase their second homes. The next four years will show an increasing population growth of 33 year-olds, the average age for home buying.
The cards are stacked in favor of a continued strong housing market for the remainder of 2020 once the doctors give us the all-clear from COVID-19, but you need to be prepared to take advantage of it.
What we do between now and then (whenever “then” is…) is up to us. We can continue to view the struggle from the lens of loss, which is very real and personal for far too many. Alternatively, we can choose to look at this as an opportunity, but you must think differently and be more creative than ever before as we are forced to streamline processes and lean on technology to provide greater access to networks and communications to build relationships.
Your partner in building wealth through Real Estate,
The Rueth Team of Fairway Independent Mortgage Corporation