Presented by Veterans United Home Loans

What's Happening with the Housing Market? Keep an Eye on These 5 Indicators

FacebookTwitterPinterestEmailShare
wooden houses with upward arrow

Sponsored By Veterans United

Entering 2020, the housing market was growing steadily, with numbers pointing toward the most substantial growth since 2008. The success of the housing market was driven by two factors: low mortgage rates and the sparsity of homes, particularly affordable ones, available to home buyers.

When the president announced a national state of emergency March 13, quarantining most Americans to their homes, pending home sales declined quickly, falling by 40% by mid-April in a year-to-year comparison. New listings followed suit, dropping by nearly half. Now, in June, purchase applications just hit an 11-year high and have risen for nine consecutive weeks.

But what lies ahead for 2020? Have home sales really hit bottom, or can we expect them to dip again before the end of the year? Predicting the housing market is a bit like forecasting the weather. There are a variety of factors that affect the ever-fluctuating market. Keep an eye on these five indicators to figure out what's happening in the housing market.

1. The Curve Flattening

We've heard quite a bit about the much anticipated "flattening of the curve." A flattened curve means that the same number of new COVID-19 cases are reported every day, suggesting that there is a measure of control over the pandemic. In theory, the stay-at-home, shelter-in-place mandates will have assisted medical professionals in making the disease manageable. Stay-at-home orders will be lifted, allowing more freedom of movement within communities.

As of this writing, every state that has imposed shelter-in-place orders has begun lifting restrictions on businesses and public places. While the reopening phases vary across the nation, the beginning of movement across the country could be a factor in increasing growth in the housing market. Homebuyers are beginning to venture back out to open houses. Sellers are still cautious, though, and as a result, inventory remains low.

2. New Home Construction

Due to the lack of inventory, the nation's homebuilders are seeing a surge in demand. According to The Wall Street Journal, new home sales rose 21% in May from last year. Many potential buyers are leaving crowded cities and heading for the wide-open spaces of the suburbs. Nearly one-third of Americans are considering leaving their urban homes and heading to residential areas.

After spending close to three months confined in their apartments, city dwellers want more space inside and outside of their homes. No one wants to quarantine again in a home they are not happy with, and some buyers who planned to purchase in 2021 are moving up their timelines. With inventory remaining low, some buyers are considering new construction.

Homebuilders and developers are feeling optimistic about the outlook for the rest of 2020. Most new home construction prices have remained stable. The number of mortgage applications for new homes is climbing. Because there are many first-time homebuyers in the market, builders are offering concessions, especially in areas that have been hardest hit in the economic downturn. Watch new home sales numbers to see whether the housing market recovery will be sustainable.

There is good news. Many households have not experienced an income disruption. Many people have been able to work remotely and continue to receive a paycheck. Government stimulus checks may offset some of the loss, and many workers will return to their jobs as communities begin to reopen. Economists are hopeful that the loss will be concentrated in the short term.

3. Supply and Demand

Eager buyers and reluctant sellers mean supply remains low, and demand is increasing. Economists are describing a V-shaped housing market recovery. Demand dipped at the beginning of the crisis but now appears to be rebounding quickly. Much of this recovery can be credited to low mortgage rates, the adaptability of real estate professionals to offer virtual shopping solutions, and the gradual easing of lockdown restrictions.

Most states are seeing a sharp increase in home loan applications. While spring typically indicates the beginning of the house buying season, most experts believe that the current high demand is some of the pent-up demand usually seen in March and April.

4. Time on Market

The term "days on market" (DOM) refers to the number of days a property has been listed on the local multiple listing service (MLS) before a seller has accepted an offer and signed a contract. When considering making an offer, buyers should always look at the number of days the property has been on the market to determine buyer interest. If a home has been on the market for only a few days, the chances are good that the property will sell for the asking price or higher. If a home has been on the market for several months, you can bet that it is overpriced for that locality.

A high DOM can be a hint to buyers that there is a problem with the property, but it can also signal an opportunity for a bargain. The seller may be refusing to budge on their asking price, but a high DOM can also indicate an owner has not received any offers on a property. They may be open to a lower offer because they want to move their property. After a certain point, homes with a high DOM become "stale," and interest diminishes. Your real estate agent can ask the seller's agent crucial questions about why the property hasn't sold, as well as about the seller's willingness to negotiate.

5. Unemployment Rates

The country is seeing a high rate of unemployment and jobless claims. Many nonessential businesses were forced to close temporarily due to stay-at-home orders, and many workers found themselves furloughed or out of a job. Because people need employment for mortgage approvals, the housing market and the economy are closely connected.

Potential homebuyers may have left the market because they have lost their jobs or have experienced a decreased income. Even employed individuals worry about job security and may hesitate to take on the financial commitment of a home loan. Due to the COVID-19 economic slowdown, some people have tapped into emergency funds and other savings. As the economy recovers, it may take them some time to get back on track. Should we see a resurgence of the virus and more layoffs, the real estate market would slow again.

Think You're Ready to Buy a Home? Consider a VA loan.

If you're ready to buy a home, consider a VA loan. The VA loan is a $0 down mortgage option available to veterans, service members and select military spouses. VA loans are issued by private lenders, such as a mortgage company or bank, and guaranteed by the U.S. Department of Veterans Affairs (VA).

Veterans United Home Loans Understands the Unique Needs of Active-Duty Service Members and Veterans.

Its mission is to help veterans become homeowners. VA loans feature benefits such as $0 down payment, no mortgage insurance and flexible credit guidelines. To start your VA loan, talk with a home loan specialist today.

Show Full Article

Related Topics

Home Ownership VA Loan