May 2020 Housing Market Outlook

Each month we are posting an updated Market Outlook based on the questions we receive from clients, employees, and investors about the implications for the housing and mortgage markets in which we are active (read April's Outlook here).

While the COVID-19 curve is beginning to flatten, the northeast region continues to be plagued by the economic effects and enduring social restrictions. Things may change in the months ahead, but here's what the data is telling us about the current real estate and mortgage markets as we enter month two of the shutdown.

Housing 

Through the end of March 2020, all Houwzer markets continued to exhibit extreme seller’s market conditions with around 2 months of inventory in PA/NJ, and 1 month of inventory in DC/MD/VA. Both of these measures match all-time record lows. Correspondingly, we also saw record high prices in March for the city of Philadelphia and we expect the same to be true in most other submarkets in which we are active (we will be releasing our full quarterly housing report with detailed analysis of each submarket in the next couple weeks).

Source: Dr. Kevin Gillen, Senior Economic Advisor to Houwzer

However, the number of sales in the same market are down dramatically:

Source: Dr. Kevin Gillen, Senior Economic Advisor to Houwzer

This is most likely due to the particularly aggressive stay at home orders directly affecting real estate transactions in Pennsylvania and Philadelphia, and not yet due to any underlying economic conditions. Though we are seeing more normal levels of activity in the DC, MD, and VA markets where the stay at home orders are more permissive of real estate activity, we still expect that those markets will exhibit some rate of reduced activity in the near future. 

In addition to local supply and demand, there are two major competing macroeconomic factors that will determine the direction of housing prices in future months:

1. The Fed Funds rate is at zero and the only interest rate lever remaining at the Fed is to go negative, as some other countries have done. The Fed’s recent dramatic cut to zero was intended to increase asset prices in a falling stock market; however, it will also have the effect of supercharging still-hot home prices if the economy resumes as normal or near-normal in a period of months.
2. One of the best predictors of long term price trends is median household income:

Source: Dr. Kevin Gillen, Senior Economic Advisor to Houwzer

If household incomes drop significantly and for an extended period, it will put tremendous negative pressure on home prices and may result in a decline in average home price. It’s too early to say whether or not this will happen, but if there is a years-long decline in median household income, it will almost certainly result in proportionately falling home prices and a shift toward a buyer’s market – regardless of interest rates. 

We don’t know yet which of these scenarios will unfold, but we believe that the pandemic’s impact on median household income (the rate of decline, and for how long) will be key to forecasting the housing market’s trajectory.

Mortgage

In the mortgage market, we’ve seen demand for refinancing continue to soar as rates have fallen and finally stabilized at near all-time lows.

Source: Mortgage News Daily

After a period of volatility, rates have stabilized and we expect these conditions to continue; it is quite possibly the best period in history to refinance a home. If you plan on staying in your home and your current mortgage rate is 4.25% or higher, it is probably worth speaking to our mortgage advisors to find out if refinancing is a smart financial move for you and what rates we can offer you.

Though we can’t say for certain what the future of the housing market looks like, we can say with certainty that Houwzer was built to change the real estate industry for good. We’ve remained true to our mission of helping homeowners save when they sell, and trust when they buy, which becomes a critical offering in challenging times. Stay tuned for more data-driven content in the upcoming months.

- Mike Maher, Houwzer CEO