4 Post-Pandemic Housing Market Trends

What should you expect from the housing market in a post-coronavirus economy? Follow these 4 indicators.

The coronavirus created months of anxiety and fear. Whether from serious health concerns, stay-at-home orders, or widespread economic fallout, Americans faced a time of deep uncertainty. In many business sectors, including real estate, a paralysis of activity placed buying and selling on pause. As the worries subside, here are the key trends to observe to help you evaluate your housing situation.

Was “pent up demand” a real thing?

By late May, purchase applications shot up on a year-over-year basis. This shows that people were waiting for shelter-in-place to be lifted. A shortage of homes on the market, both before and during the pandemic, drive increased demand. Even in states that are more aggressively opened up, homeowners are not comfortable listing their homes and having buyers walk their property. The demand-supply imbalance is contributing evidence. More people want to buy, but housing inventory remains low.

Here are a few other factors pushing up buyer demand:

  • Interest rates are low, tempting anyone with good credit and income to consider their opportunities.
  • While people were sheltering in place, they were spending a lot of time thinking about remodeling and whether their current house meets all of their family needs.
  • Reduced income and concern of job loss is beginning to subside. A National Association of Realtors survey in May showed that 34% of consumers were delaying buying a house due to job concerns. Many of these people will come back as states begin to re-open.

Effect of low mortgage rates on buy/sell activity

How exactly are historically low mortgage interest rates playing into buyer behavior? Because there are still so many buyers who can get financing, low mortgage rates help them afford higher prices. That keeps prices from dropping. However, sentiments shift rapidly. Many buyers anticipate that recent economic turmoil means they can get a discounted prices. This thinking may slow transactions.

With that said, any average American who did not lose their job or income from COVID-19 will want to take advantage of the opportunity to buy or refinance. Fannie Mae is anticipating a 51% jump in refi’s from 2019. The Federal Reserve will do whatever it takes to keep the economy afloat, which means interest rates are not going up any time soon, and may go lower. Those who can refinance will consider it. Lenders have implemented more checks along the way, such as multiple employment verifications. But people with good FICO scores and incomes face an attractive opportunity.

What’s next with mortgage forbearance?

The number of people who entered into forbearance agreements is in line with expectations. The majority of job losses came among mid- and lower-income earning industries. For example, Ginnie Mae’s loan portfolio shows a higher percentage of loans in forbearance (11.6% as of May 17th compared to 6.36% for Fannie Mae and Freddie Mac). Ginnie Mae’s mission is to increase access to credit for first-time homeowners, as well as low and moderate-income borrowers. Those homeowners are experiencing more distress.

The decline in employment and income is also hitting FHA and VA borrowers hard. But forbearance requests started declining week over week in late May, which is a good sign.

Refinancing in the current market

People usually refinance to lower their monthly payments or to cash out. With 30-year fixed mortgage rates hovering around 3%, anyone whose rate is 4% or higher, who has a job, a conforming loan, and good credit should consider refinancing. Prices might go down and refinancing might be harder once the supply/demand equilibrium stabilizes.

Whether it’s to lower monthly payments or put money aside, refinancing is a good idea at the moment. HELOCs and equity lines are more expensive for anyone needing cash. The general market consensus is that rates will stay low for the next 12 to 18 months thanks to the Fed’s commitment to stabilize the economy no matter what it takes. But once the government stimulus ends, rates may go up.

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Polina Ryshakov

Polina is Sundae's Sr. Director of Research and Lead Economist. She has more than 15 years of valuation experience across commercial and residential real estate. Her background includes stints with Cushman & Wakefield, Hanley Wood, and Standard & Poor’s. Polina graduated with a double major in Economics and International Relations from the University of California at Davis and has been a CAIA Charter Holder since 2010.