Monthly Mortgage Market Trends

May 2020

May Mortgage Trends Insight
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NICOLE RUETH

Producing Branch Manager

 

 

Metro Denver Housing Remains Active Amid COVID-19

Home appreciation remains as overall economy slumps 

The nation’s economy overall, unemployment, deflation, The Federal Reserve, metro Denver’s local real estate market dynamics… there are so many important headlines to discuss.  May’s Market Trends Report is a much fuller picture of the impact COVID-19 has had on the real estate market, but anticipate more to come in the months ahead. 

The loss of jobs and social distancing continues to bring many transactions and businesses to a screeching halt. As you review the report, keep in mind the scary red numbers in this month is no surprise and there are a few silver linings buried in there as well. Let’s start at the top and what’s going on in the economic market and consumer confidence and why it explains the trends we’re seeing in Denver’s real estate market.

Unemployment

In just six weeks, over 30 million people filed for unemployment as the economy shed the same number of jobs that were created since the Great Recession in 2008. The U.S. Department of Labor’s April employment report will be out this Friday, May 8th and labor economists expect to see national unemployment rates spike to 16.1%, which is the highest since 1939. The 16.1% is not the full picture for unemployment as the household count for April was done during the week of April 12th, meaning two additional weeks of jobless claims will not be included in Friday’s numbers. 

I’d guess April’s numbers are closer to 19-20% unemployment. Economists expect post-COVID-19 unemployment numbers to stay around 7%, when February’s pre-COVID-19 numbers was a record 50-year low of 3.5%, signifying a slow-moving recovery period for the long-term. Although 7% is certainly not ideal, it is enough to continue to support the housing industry.

GDP and Consumer Confidence

On April 29th, the GDP for 1st quarter was published at a negative 4.8%.  We have been hovering around 2% quarter over quarter growth for 3 years. Many experts believe 2nd quarter will drop to as much as 20%, which will meet the definition of a recession - two consecutive quarters of GDP decline. 

Consumer spending – which accounts for a whopping 70% of the nation’s GDP - is down, but lower consumer good prices is worrying economists. The Federal Reserve’s Personal Consumption Expenditures Prices Index (PCE Price Index), which measures the price changes of consumer goods, dropped from 1.8% to 1.3%. Price deflation, or paying less for consumer goods, seems like a positive reaction, but this also means companies producing goods will need to cut wages or shed employees. Keep an eye out for wage and salary decreases as these will show how impactful deflation impacts the overall economy.

The Consumer Confidence Index of how consumers feel about current economic conditions dropped 90 points in April, the largest drop on record, thanks to the sharp contraction of economic activity. Respondents said 50% would not return to public places, 71% would not go to a restaurant, 85% said no to getting on an airplane, and 87% would not attend a large event. Fortunately, American consumers remain cautiously optimistic as another index rose to 93.8 from 86.8 on where they think the economy will be in six months. 

In-Person Showings Return

Consumer confidence is affecting the real estate market as sellers and buyers navigate stay at home orders and worry whether their jobs are safe. Even as the first phase of Colorado’s “Safer at Home” orders allow in-person showings, many buyers and sellers will remain uncomfortable doing so which may impact the market. 

May’s Market Trends Report shows how social distancing created a chilling effect on the housing market as month over month new listings were down 28.56%, pending home sales were down 26.25%, and closed homes were down 21.94%. The May 2020 report seems to resemble January 2020’s numbers, which is notable as winter is historically one of the slowest seasons for the market. 

However, when I look at the year-to-date numbers, I’m reassured that the Denver market has a huge head start as year-to-date new listings were down by only 10% and closed homes down by only 4%. Even more exciting, listings are up almost 19.5% month over month as more than 2,000 new listing came onto the market in April, shrinking the year-to-date gap from an 8.2 percent deficit last month to a 2.24 percent deficit this month. 

Appreciation Hangs On as Demand is Strong

Appreciation was the name of the real estate game in early 2020 as closed prices increased 6.25% in February and 6.75% in March. Overall, appreciation is up year to date by 6.10% as Denver withstands April’s anticipated contraction. Lawrence Yun, NAR’s chief economist stated, “While sales have declined, home prices are still solidly strong.” National expectations for year-end appreciation are 1.3 percent. Metro Denver’s market dynamics of a continued shortage of inventory combined with strong demand should keep our appreciation levels ahead of the nation.

Despite today’s negative economic numbers, we need to remember how changing demographics will support the real estate market in the long-term. There are 8.8 to 9.2 million first-time home buyers, aged in their 30’s, who are jumping into the market. COVID-19 may slow this generation’s home buying temporarily, but it will not stop it. The last week of April saw Mortgage Purchase Applications increase by 11% with 3,500 scheduled showing as Colorado opened the door to in-person showings. 

Buyers remain hungry and will likely be willing to compete and pay higher prices for homes. In fact, average days a home spent in the MLS last April dropped to a low of five days, lower than last month’s seven days in March and eight days in 2019. 

Low interest rates will continue to fuel increases in demand. According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage hit a historical low of 3.23% on April 30th, down from 3.45% at the end of March and even lower than the previous historical low of 3.29% on March 5th. In April, the Federal Reserve decided to maintain the target range for the federal funds rate at 0 to 0.25% and will continue to do so until it is confident that the economy is on track to achieve its maximum employment and price stability goals of 2% inflation.

Time to Navigate

Rates are low, pent-up sellers are ready for a change of scenery, and buyers want to get out of that 800 square foot apartment. Time to jump in, right? Yes... and no. 

Yes, if you’re a seller. Take advantage of the sellers’ market with less than three months of inventory at every price point under a million. Proper pricing and effective staging are moving houses off the MLS quickly and will earn you appreciation.

If you’re a buyer, it depends on your personal circumstances. The Consumer Confidence Index reports 36% respondents say they are impacted today and 41% surveyed said if COVID-19 continues for a few more weeks that it will eventually affect them. Only 17% were not impacted. The longer social distancing drags out, the more buyers will be affected and unlikely to purchase a new home. However, if your job is secure, now is a great time to buy.

As consumers determine what they can and should do from a personal finance perspective, it is our jobs as agents and lender to be homeownership guides support our buyers during challenging times. Continue to find ways to implement virtual strategies, online marketing, and electronic communications. The buyers are craving advice on how to buy a home and sellers are there... they just want to meet on their terms.

Your Partner in Building Wealth through Real Estate
Nicole Rueth
The Rueth Team of Fairway Independent Mortgage Corporation

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Contact Info

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nrueth@fairwaymc.com   750 W Hampden Ave Suite 500 Englewood, Colorado 80110, United States

 

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