Posted in: Op-edHousing Market
Published:
April 21, 2020 6:08 PM UTC

U.S. Housing Market Is a Ticking Time Bomb as March Sales Plunge

Existing home sales plunged in March as the U.S. housing market grapples with a potential crisis due to the novel coronavirus.
  • Existing home sales fell sharply in March.
  • The U.S. housing market stares at an uncertain future.
  • Rising unemployment could crush demand.

It was only a matter of time before the hot U.S. housing market started losing its wheels on account of coronavirus, and the latest sales data provide further proof of a potential crisis.

Source: Twitter

The National Association of Realtors (NAR) reports that existing home sales slumped 8.5% in March compared to February. NAR’s chief economist Lawrence Yun anticipated the decline and blamed the COVID-19 outbreak for the same:

Unfortunately, we knew home sales would wane in March due to the coronavirus outbreak. More temporary interruptions to home sales should be expected in the next couple of months, though home prices will still likely rise.

While Yun believes the U.S. housing market is in for difficult times, he also suggests that price gains will continue despite a plunge in demand.

March Sales Slump Points to Potential Crisis

Yun seems to derive his confidence from the fact that the median price of an existing home increased 8% annually to $280,600. Those gains were a result of a 10.2% decline in total housing inventory, while sales increased 0.8% year-over-year. The shortage of supply sent prices soaring, but Yun seems to be missing a key fact.

Home prices in March increased as houses sold during the month were originally contracted for sale in February, as Redfin points out. The U.S. economy started shutting down from mid-March, and unemployment claims began going through the roof. So, expecting the U.S. housing market to sustain its pricing strength based on homes that were contracted for sale in February doesn’t make sense.

Source: Twitter

Instead, one should take a look at the price of new home listings to judge the health of the U.S. housing market. According to Redfin’s market tracker, the year-over-year growth in the asking price of new homes dropped from 8% in mid-March to zero in mid-April.

We will have to wait for April and May pricing data to see the real impact of Covid-19 on the housing market.

Crumbling Demand Could Crush Prices

Redfin data reveal that homebuying demand was down 36% year-over-year in the week ending March 28. The steep drop continued into April as homebuying demand fell 25% annually for the week ending April 13. Similarly, pending home sales were down a whopping 54% annually for the week ending April 10.

If demand is crumbling at such an alarming rate, it would be a matter of time before the U.S. housing market loses its wheels. Capital Economics predicts that home prices could decline 4% by early next year as demand weakens due to the spike in unemployment.

The U.S. economy is staring at a significant contraction this year as the economic fallout of the novel coronavirus takes hold. Noted economist Mohamed El-Erian is predicting a 10% to 14% contraction in the U.S. economy in 2020. The International Monetary Fund (IMF) warns that the U.S. could see its worst days since the Great Depression.

Such gloomy predictions may turn out to be accurate as corporations have started laying-off employees by the thousands. The unemployment rate is expected to go up remarkably in the coming months, and that could send the housing market into a tailspin as demand dries up.

Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com.

This article was edited by Sam Bourgi.

Harsh Chauhan @techjunk13

Harsh has been covering financial markets on CCN since 2019. He has also written for other reputed publications such as The Motley Fool, TheStreet, and Seeking Alpha, and gets regularly featured on Yahoo! Finance. Harsh is based out of Indore, India. You can follow him on Twitter @techjunk13 or email him at harsh.chauhan(at)outlook.com.

Show comments