The last six months has been a whirlwind of events, all impacting the real estate market in different ways. Earlier this year, the Fed cut rates to nearly zero, driving millions of Americans to pursue new home acquisitions or refinance opportunities. However, shortly after, as the pandemic spread across the globe and stay at home orders were established, the transaction velocity of properties came to a halt.
Fast forward two months and the trends are already shifting. A recent survey conducted by Zillow has identified that while affordable housing remains low at this time, high-end property listings have actually increased.
According to their findings:
- In June, new listings of the most expensive homes were only down 9% from a year ago — a huge recovery from May, when those listings were down more than 50% year over year.
- New listings for the most affordable homes remain depressed, still down 29% from a year ago and only three percentage points up from this May.
- The spike in new listings of high-end homes helped cause the median list price to jump nearly 3% from May to June.
- Property listings in major markets increased compared to the year prior – San Francisco up 33.5%, San Jose up 27.3%, and Miami up 13.1%.
The variance apparent in the housing market has been attributed to four main factors.
1 – Low interest rates are promoting moves for those who qualify.
When rates were first cut, people flocked to take advantage of the opportunity. But as economic uncertainty became more prevalent and as more American’s lost their jobs, lenders began tightening the reigns on those who qualified for the low rates. For example, JPMorgan Chase started requiring borrowers to have a minimum FICO credit score of 700 and to put at least 20 percent down, making it more difficult for people to obtain a loan. As a result, the shift in buying power made it more opportunistic for the wealthy to qualify and trade up.
2 – High unemployment rates are keeping velocity for affordable housing relatively low, until the consequences of the pandemic unfold.
Millions of Americans, many of them homeowners, have lost their jobs and are dependent on unemployment benefits at this time. However, because of the additional income these individuals are receiving from the CARES Act (receiving an extra $600 per week for those who qualify), many have been able to continue to pay their mortgage. This is scheduled to end July 31st, which will have a dramatic impact on their ability to keep their homes. In addition, there has been a federal, state and county ban on evictions. According to Zillow economist Jeff Tucker, “Millions of Americans who lost jobs or income are only able to stay in their homes right now thanks to extraordinary forbearance programs, which means they likely have to pause their plans to trade up or move to a new city.” Though, when the federal aid subsides or when the eviction ban is lifted, there may be an influx in homes that hit the market.
However, wealthier homeowners whose employment has remained stable are in a position to trade up, Tucker reports. They are in an optimal position to take advantage of the low interest rates.
3 – Home prices are up, making it unwise for some to move.
High demand and minimal supply paired with low interest rates is driving home prices up. Zillow’s recent report indicated that the median list price of homes has started to accelerate – The week ending with July 4th witnessed a 0.6% increase in home value from the week prior, and a 3.8% increase compared to the same time last year.
While the rising prices may be a deterrent to the middle class, those who can afford it are taking action – In fact, the homes that are trading are reportedly on market for a nominal 20 days, and a majority of the acquisitions are all cash.
However, this upward trend in prices is anticipated to fall. Forecasts by Zillow identify that 2020 will see a 50% decline in pending home sales from their pre-coronavirus levels, as measured at the end of 2018, but will then recover to about 97% of Q4 2019 levels by the end of 2021. The question here remains: What percentage will be high end homes versus more affordable homes?
4 – Homebuyers are relocating to less dense areas…if they can.
As fear of the spread of coronavirus remains, Americans continue to seek housing in more semi-remote locations. A new Redfin report found that pageviews of listings in towns with less than 50,000 residents were up by 87 percent year over year in May. A majority of those leaving their homes include the wealthy, and they are trading in their penthouses for acreage in more isolated areas.
Yet, not all are afforded this option. Those who are tied to their company’s location cannot make this move, while most executives are anticipated to transition to remote positions.
As of now, every week is introducing a new trend in the housing market. However, until there is a slowdown in new COVID-19 cases, employment picks back up, and restrictions for socializing are removed, the true impact that the pandemic will have had on our economy will remain unknown. But from the data we have seen thus far, we can anticipate that listings will continue to rise for high-end homes as wealthier individuals move to accommodate the new lifestyle COVID-19 has introduced.