It may be too early to forecast exactly what lies ahead for the housing market once COVID-19 passes into the history books. But at this point, the sector seems poised to retake its place in leading the economy back from the coronavirus-inspired recession.
Housing didn’t guide the economy after the Great Recession, but that event was characterized by an overabundance of houses and lending standards that qualified practically anyone who could fog a mirror.
This time around, the fundamentals are far stronger. Indeed, housing was headed for the record books when the economy went into lockdown. And when the shutdown finally ends, it should pick up again where it left off.
But that doesn’t mean there will be a return to normal. With that in mind, here’s a look at what lies ahead.
-- Existing homes. There’s no question the resale sector has been hit hard. Nationally, sales plunged nearly 18% in March from the same month a year ago -- the biggest descent in almost a decade, according to the National Association of Realtors.
But prices seem to be holding steady. Indeed, NAR thinks prices may even rise a percentage point or two this year as inventory continues to dry up. And most observers believe that when the all-clear is sounded, the market will come back with a vengeance. Indeed, there are already signs of that.
The number of people reaching out to Redfin agents in mid-May was up 16.5% -- enough for the chain to bring back about a third of the employees it had furloughed earlier. And more sellers put their homes on the market with Redfin in the week ending May 15 than in any other week since March 1.
ShowingTime, a scheduling service for agents, says visitor traffic experienced year-to-year gains immediately after states loosened the reins on in-person showings. And predictive models at Offrs.com suggest that listings will surge 38% next year.
But when the market does open up, house shopping is likely to be much different. For one thing, open houses, a weekend ritual in many places, could be few and far between.
Opens have always been somewhat controversial; some agents hate 'em, but others love them. Truth be told, few houses are sold to open house visitors. Agents mainly use them to appease sellers, and to turn agent-less visitors into future clients.
During the epidemic, many states prohibited open houses, so some agents turned to virtual tours. And why not? Most people start their house search online anyway.
That’s likely to continue. Once you find two or three houses you’d like to see in person, you’ll have to make an appointment. You may be asked to wear a mask, gloves and/or bootees, and told not to open cabinets or appliances. Once you leave, someone will disinfect the house, and the owners can resume their day.
-- New homes. At the beginning of the year, new construction was expected to absorb some of the heat from the lack of resale inventory. But that sector has also been struggling. You could say builders have caught the virus.
Single-family housing starts plunged 25% in April to the lowest number in five years. Sales at the 18,000 actively selling projects covered by Meyers Research were down 33% in April. Meanwhile, 22% of builders told the National Association of Home Builders that they have cut prices to bolster sales.
Most recently, though, builder confidence has bounced back a tad. New home prices have remained fairly steady, actually rising a scant 0.6% in April. Also, about a third of the 300 division presidents polled by Meyers said they expect to hit or even exceed their May goals. At the same time, though, a fourth told researchers they won’t sell 70% of the homes they expected to in 2020.
When builders start putting shovels in the ground again, they’re likely to move slowly. Because they face so many headwinds, they may have to.
Early in the pandemic, a third of all builders halted work in some or all of their projects, the NAHB found. Worse, many buyers canceled their contracts, causing builders to cut back on putting up spec houses intended for customers who needed to move right away. And builders who wanted to keep working had difficulty getting plans approved because many building department employees were working from home.
Moreover, while some well-heeled outfits were being aggressive, others stopped looking for land for new projects, or canceled deals they had under contract. Also, their cost of financing is rising, more than 400,000 jobs have been lost in the construction and remodeling sector, and prices for lumber and other building materials could be rising soon.
Adding all this up: It will take months -- 16 to 20, the Meyers firm is saying -- for the sector to recover, and more than three years to return to its peak. And buyers may not be able to tour model homes at will, as they once could. Like in the resale market, appointments will be needed to tour a house.
You might not meet with a salesperson, either. Maybe you’ll be given a unique-to-you code to unlock the front door so you can walk inside and tour on your own. The builder’s agent will follow up once you leave, and someone will come into the model to sanitize the place for the next visitor.