As Covid-19 started to shut our world down and people began to ask me what was going to happen in real estate, I was steadfast in refraining from making predictions because there were, and still are, way too many ‘unknowns.’ That doesn’t mean I didn’t have my hunches. I suspected that very few people would continue to want to list their homes for sale and we would see a precipitous drop in new listings. But so far, I feel like that hunch has been wrong because during the period April 1-18, new listings are only down about 25% year-over-year (from the same time period last year). Pended purchase contracts, however, are trending down about 40%.
I suspected that buyers would be less likely to drop out of the buyer pool, especially first-time buyers. I figured that many first-time buyers in particular would see this time as an opportunity to stay in the market while others dropped out, giving them a better opportunity to FINALLY land a good house, given how incredibly tight the entry-level market has been the past few years. Seems like a fairly well-reasoned hypothesis, no?
Well, it started out that way–and that still might be the prevailing mindset. Even as early as April 1-7 accepted contracts were only down about 25% compared to last year. But since then, things have changed. Yes, Easter was late this year compared to last year. But given stay-at-home, it didn’t really feel like a normal Easter weekend, and we haven’t yet seen a rally in contracts post-Easter.
The two most likely reasons as I see it: 1.) Loss or fear of loss of employment or confidence in financial standing. 2.) Tightening lender restrictions (this is still very real as lenders face liquidity issues due to forbearance threat). Both of these issues are far from resolved and it is obviously very hard to predict how long they could persist.
So rather than the market tightening in favor of sellers even more, it has actually started to loosen up, although the number of homes for sale is still relatively low compared to the number of buyers—even based on these dwindling numbers. In most of the 7-country inner-Metro area below $500,000 it is still very much a seller’s market. And yet it’s probably the most likely time in the past 3 years that a buyer might be able to take a run at a house without running into a multiple-offer situation.
Incidentally, in the $500,00-$1m luxury market, the seller:buyer ratio ticked up above 6:1 based on last week’s pace of sales. So we can now call that segment of the market a slight buyer’s market in the 7-country inner-metro area.
This week feels like it will be an important week to watch very carefully. (Granted in our new normal things change daily on a macro level, and potential unknowns never feel too far out of reach.)