By Hadassa Kalatizadeh
American’s are not used to spending this much time in their homes. It seems this time in lockdown, which was prompted by the novel coronavirus, has led some to think about improving their living space. Perhaps, it’s that these residents finally have the time to pursue such whims or that being confined in the space has forced others to seek an improvement in their conditions. “Housing has followed V shaped recovery, no questions asked—as quickly as it fell, it’s coming back,” said Ali Wolf, chief economist at Meyers Research. “But there are still major risks.”
As reported by Crain’s NY, since there is a shortage in the housing market with few owners opting to sell their homes, a more popular options seems to have become upgrading existing homes or rebuilding. Some home builders who were bracing for the worst during the shutdown, were surprised to see a spike in business. One such business is Pacesetter Homes in the Dallas area of Texas, who saw their sales jump in by 30% above the company’s own pre-crisis forecast in May. “We’re all doing pretty well right now and we’re all, quite frankly, very surprised,” said Lee Whitaker, vice president of Pacesetter Homes. Pacesetter executives are adjusting home plans to accommodate the new mode. Some clients are opting to replace the common open floor plans, creating separate spaces for Zoom rooms or home classrooms, Whitaker said.
Real estate agents and home builders are using virtual showings and no-contact closings to adhere to social distancing during the ensuing novel pandemic. New-home sales, which are a relatively small portion of the market, posted a gain last month. This surprise is stimulating optimism that the housing market, which was expecting a prosperous spring season before the virus closed everything off, may be bouncing back more quickly than anticipated. Other factors propelling the market include the fact that mortgage and borrowing rates are now at record lows, although not all applicants will qualify for these loans.
Still, optimism may be premature as there are mixed signals. On the bright side, applications for purchase loans, which have gained for six straight weeks, are now back to early-March levels, as per the Mortgage Bankers Association. On the other hand, contracts to purchase existing homes fell 22% in April, reaching a record low. Tendayi Kapfidze, chief economist at LendingTree, is unconvinced that this is a recovery. The housing market cannot excel when the economy has already lost 40 million jobs, he said. “I think there’s trouble ahead,” Kapfidze said. “I wouldn’t say housing is back. We’ve had some interesting months, but let’s see how it sustains itself.”
Investors have been less critical. Homebuilding stocks are up with a show of investor optimism. An S&P index of homebuilders has nearly doubled since its fall on March 23. The index has now recovered nicely, and is down less than 2% for the year.
The general consensus among experts seems to be that we’ll take good news where we can get it, and the market seems to be improving faster than expected. Still, it may be early for celebration. The spike in unemployment is not something that can be isolated when it comes to the housing market. The economy will need to recover as a whole before any sector can do so. “It’s going to be difficult to see housing expand strongly until we start to get a better recovery in the job market,” said David Berson, chief economist at the insurance and financial services company Nationwide.
