This is a longer in-depth report than I usually write on the real estate market because there are a lot of things going on that warrant attention so let’s get right into it.

The Housing Supply Fell Off A Cliff In April
The Coronavirus quarantines implemented in March interrupted what was expected to be one of the busiest spring housing markets. The severe housing shortage was a frequent topic in the Tidwell Report long before these quarantines, and the quarantines only made things worse.

Starting in late March, once people realized what these quarantines meant, sellers removed For Sale signs from their yards and sellers about to list canceled any plans they had to sell their homes as they feared this could bring the Coronavirus into their homes. This effectively represented a crash in the supply of homes for sale.

Since then, new listings remain way down…as in down more than 20% from the previous 30 days as well as down significantly from the numbers a year ago.

This increasing severity of the housing shortage will put significant upward pressure on home prices. Some people thought the Coronavirus was going to crash the real estate market. That does not appear to be happening.

Surge In Both Refi Activity and Purchase Demand
When interest rates drop, it fuels refi activity and spurs people to buy homes. Realtor.com predicts that average rates “may slide under 3% by the end of the year,” and some sub-3% rates are already out there. You just have to know where to find them. In fact, research from LendingTree found that different lenders can offer the same borrower rates that vary by 1 full percentage point or more. Fortunately, the lenders I work with not only offer competitive rates but they close deals…some lenders are facing challenges closing deals so it is critical to have the right lender behind the right agent.

Not only have incredibly low interest rates kept refi activity very high (~2X what it was last year), but they have fueled purchase activity after the ~30% dip in mortgage applications seen from March to April. If you think that is impressive, consider that mortgage applications are now 20-25% higher than they were Pre-Coronavirus. This mortgage application activity are at their highest levels since January. Incidentally, those January levels were the ONLY time purchase apps have been higher since before the financial crisis according to the Mortgage Bankers Association.

While buyers and sellers often were hesitant about tours of existing homes during the pandemic, the greater availability of virtual tours and contactless showings appears to have made a big difference. Open houses remain prohibited but we are permitted to conduct private showings if we follow strict guidelines while wearing personal protective equipment.

This kind of rebound is almost unheard of and implies that a lot more people are looking to buy and looking to buy quickly either to take advantage of low mortgage rates or to take advantage of the interruption that the Coronavirus has created. That correlates with what I am seeing and experiencing in the market. I’ve sold more real estate since January 1st than I did all last year, and two of my most recent listings listed during the Pandemic and sold for 7% and 9% above their list price.

Home Prices To Rise
Given the current situation detailed above, it is not inconceivable that home prices will continue to rise especially for entry level homes where demand is strongest. One banker told me that it can take up to 6 months to see the benefits of a reduction in interest rates. Since interest rates have been falling, it is difficult to anticipate when the current demand will recede or price appreciation will come to an end.

When demand outstrips supply and interest rates are at record lows, as is the case right now in most price ranges, buyers are attracted to the market and market conditions uniquely favor sellers. When this happens, I flag this as a rare opportunity to consider selling or changing your housing situation for the better if you own a home with one or more undesirable qualities.

Undesirable qualities include but are not limited to:

* Homes with outdated floorplans, homes not remodeled in the last 8 years, or homes with a lot of deferred maintenance
* Homes in a busy street or against an alley
* Small homes, small backyards, or no backyard at all–Quarantines have us stuck at home and we want more room to work and play)
* Homes on a hillside or homes that require significant annual maintenance
* Homes on flag lots or irregularly shaped lots

Unless the neighborhood is an absolute must to get into a special school district, for example, I strongly discourage clients from buying homes with undesirable qualities. The fact is that these undesirable qualities negatively impact a home’s future marketability and market value as compared to homes sold in the same neighborhood without those undesirable qualities.

Now May Be The Best Time To Sell
In an up market, like the one we just reentered, we are able to attract multiple buyers at the same time. These buyers are more willing to overlook undesirable qualities and potential repairs just so they can get the home over another buyer and to bring their home search to an end.

In any other market, attracting multiple buyers at the same time can be extraordinarily challenging. In these markets, buyers become deal hunters. If you think they will settle for a home with an undesirable quality, they will insist on a steep discount. If they feel they are not getting a sufficiently good deal, they walk and the home does not sell because it is a down market and buyers are not lining up out the door to buy homes with undesirable qualities as they do in up markets.

Some Think The Market Will Crash Like In 2008, But They May Be Wrong
Lending institutions and local, state, and federal governments learned a lot from the 2008 financial crisis. They are establishing and have developed mechanisms to avoid a significant stream of foreclosures, resulting from the Coronavirus quarantines and government mandates. Many banks stand ready to modify loans and they have streamlined the process to get people rates and terms they can pay as borrowers move out of forbearance if they have not reestablished their employment.

Even if some foreclosures directly result from this in the future, these foreclosures may happen to occur so far out that any impact on the housing market will be marginal. Forbearance agreements may be extended and bans on foreclosure proceedings could push back the earliest dates that foreclosure proceedings can be commenced. By the time a foreclosure can be completed, the economy should have had sufficient time restarted and for employment to pick back up again.

There will be some fallout from the Coronavirus, but I do not believe that the worst case scenario that people are worried about is not going to happen in our local markets. The Coronavirus interrupted economic activity and it created a lot of uncertainty but things are coming into focus and progress is being made toward a vaccine. What has become increasingly evident is the fact that the government stands willing to inject additional stimulus and provide more relief to limit economic damage–though this might not help every single person who has been negatively impacted as some would hope.

For good or for bad, various states are slowly reopening under the promise that public health guidelines that allow for social distancing will be implemented. This may be the inflection point of resuming some semblance of the life we used to live. I know a lot of people with and without kids who cannot wait for things to open back up in a safe manner, and I know other people who are opposed to reopening the economy until there is a vaccine because of the threat to themselves or loved ones with preexisting conditions.

In the midst of uncertainty, I am proud that we’re able to successfully help our clients buy and sell homes with contactless showings. If you are in need of real estate services, or you know someone who is, please don’t hesitate to reach out.

Prepare for a lot of mixed signals!

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Stock Markets Recovered Significant Ground, How So?
I asked David Soloway, Senior VP, and Meredith Wu, Senior Investment Associate, at Nothern Trust. They cited three factors:

Progress on the virus: We continue to see curve flattening in the “hot spots” and observe much higher testing numbers, which has been widely reported as a requirement for confidently relaxing lockdown measures. Further, investors have watched advancements on the treatment and vaccine fronts, both of which have received intense focus from the pharma/biotech industry and exhibited progress. For example, the announcement that Moderna’s vaccine has shown early indications of viability has certainly fed into optimism.
We have a plan! Currently, all 50 states are in the process of relaxing lockdown measures, and investors are getting real time updates as to the impact this is having on local economies and some large businesses. There are signs of pent up demand; for example, Starbucks reporting that it has recovered 60-65% of same-store sales over the last week. As we have noted in the past, each day brings new data and can provide important signals about the expected contours of the recovery.
The bridge has been built: We continue to hear from Treasury Secretary Mnuchin and Federal Reserve Chairman Powell that policy makers remain very much on the case, ready to provide more support if needed. Powell, in particular, has struck a cautious tone both in a 60 Minutes interview last Sunday as well as through the recently released FOMC minutes, and acknowledges that more will likely be needed. This stance is important for investors, as aggressive and targeted policy mitigates a key risk case.

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SIGNS THE ECONOMY IS STARTING TO PICK UP:
Much of how the future goes depends on the ability of the economy to restore the millions of jobs that were lost. This week’s Jobless Claims data provided positive news as the number of workers filing for ongoing unemployment claims dropped by nearly 4 million. That could certainly be the big bounce, but we knew that was coming. So much of what happens next for the economy depends on how well and how quickly we get things going again.

4.75M are in Forbearance as of May 26, but the number of new forbearance requests slowed down substantially, which is a positive sign.
The nation’s leading infectious disease expert, Dr. Anthony Fauci, touted Moderna’s announcement regarding progress on a vaccine. He acknowledged concerns about the lack of details in the company’s recent update, but he said he looked at the data and considered it quite promising.

Oddly, a recent poll found that only 49% of Americans said they would get a vaccine to prevent the coronavirus, another 31% said they were not sure yet, and 29% actually said they would not get a vaccine. Not surprisingly, these findings align with similar surveys of willingness to take the yearly flu shot.

Bank customers are increasing their use of debit and credit cards, a sign the economy is recovering.

Starbucks announced that the company had regained around 60-65% of the prior year’s comparable U.S. store sales. In China, comparable store sales were around 80% of their levels the previous year.

Filings for unemployment benefits, mortgage applications, air travel and public transit showed slight but steady improvement from depressed levels. Hotel occupancy across the U.S. has risen for five straight weeks: 32.4% for the week of May 16, up from a low of 21% over a month earlier, but still well below the 62% seen at the beginning of March.

Inflation Drops: One consequence of the reduced economic activity resulting from the pandemic has been a decline in inflation, which has helped keep mortgage rates low. In April, the core PCE price index, the indicator favored by the Fed, was just 1.0% higher than a year ago, down from an annual rate of increase of 1.7% last month. Fed officials have stated that their target level for annual inflation is 2.0%.

Looking ahead, investors will continue to watch for news about medical advances, Fed actions, government stimulus programs, and plans for reopening the economy. Beyond that, the monthly Employment report will be released on Friday, and these figures on the number of jobs, the unemployment rate, and wage inflation will be the most highly anticipated economic data of the month. In addition, the ISM national manufacturing index will be released on Monday and the ISM national services index on Wednesday.

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STOCK MARKET
*markets gained another 6% in May as most of the country have allowed businesses to reopen*
For the second straight month stock markets have made up losses that began when stay at home orders went into effect in March. Businesses throughout the country have begun to reopen and stock markets had another successful week. Many are wondering why Wall Street is doing so well when so many people and businesses are suffering. Experts site many reasons. Among them are trillions of dollars in government stimulus, historic low interest rates lowering borrowing costs, and reduced payroll expense. Unfortunately, many business have issued guidance that they have realized that they were over staffed and will not be bringing as many employees back, because they can achieve the same production with fewer people. If you have watched movies like “Company Men” you can see the most unpopular possible example of how cutting staff reduces expenses, increases profit, and drives stock prices up. It appears that much of the country is getting back to normal faster than anyone thought. Perhaps it’s happening too quickly in the opinion of many, but it’s been encouraging for investors who wondered if we would ever get back to normal.

By The Numbers:

The Dow Jones Industrial Average closed the week at 25,383.11, up 3.7% from 24,465.15 last week. It’s down 11.1% year to date.
The S&P 500 closed the week at 3,044.31, up 3.2% from 2,966.45 last week. It’s down 5.8% year to date.
The NASDAQ closed the week at 9,489.87, up 2.2% from 9,324.59 last week. It’s up 5.9% year to date.

TREASURY YIELDS

The 10-year treasury bond closed the week yielding 0.65%, almost unchanged from 0.66% last week.
The 30-year treasury bond yield ended the week at 1.41%, up slightly from 1.37% last week.

UNEMPLOYMENT
*The number of people receiving unemployment benefits dropped last week for the first time since February*
Although another 2.1 million American workers filed first-time unemployment claims last week. The total number of people on unemployment for the week ending May 16 dropped by 3.9 million from the previous week. That marked the first weekly decline since February. This was a welcome sign to investors as the majority of the country has begun to reopen, and workers are heading back to work.

MORTGAGE RATES
*dropped again this week*
The Freddie Mac Primary Mortgage Survey released on May 28, 2020, reported mortgage rates for the most popular loan products as follows:

The 30-year fixed mortgage rate average was 3.15%, down from 3.24% last week.
The 15-year fixed was 2.62%, down from 2.70% last week.
The 5-year ARM was 3.13%, down slightly from 3.17% last week.

Stay safe and enjoy your weekend!

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