Why the U.S. Housing Market Will Survive the Ugly Home Sales Plunge

April 23, 2020 7:53 PM UTC
New home sales plunged more than expected in March, but the housing market could improve dramatically once the COVID-19 pandemic passes.
  • New home sales plunged 9.5% from a year ago to 627,000 in March as buyers and sellers pulled back from the housing market.
  • April should be even worse.
  • Here’s why there is still hope for the housing market.

The COVID-19 pandemic is pummeling nearly every sector of the U.S. economy, including the housing market. With declining sales and falling confidence, the once-hot market for new homes slowed down this spring.

March New Home Sales Are Worse Than Expected

According to the U.S. Census Bureau, new home sales fell 15.4% from February and 9.5% from a year ago to 627,000.

Those new home sales data offer a look at how the housing market has evolved as a result of the coronavirus epidemic.

Even though sales in the first quarter remain roughly up 7% from Q1 2019, they are worse than expected. The gains are due to the strength of the market in January and February, before the coronavirus outbreak. The month of April should be even worse than March.

The U.S. housing market was hot in early 2020. But it has frozen as sales have declined, construction projects have been halted, and homebuilders’ confidence has plummeted.

All this could make home prices fall despite a strong trend of growth. In February, U.S. house prices rose 5.7% from the previous year.

The U.S. Housing Market Slump Won’t Last Forever

The housing market isn’t out of the woods, but there’s light on the horizon. | Source: Tyler Olson/Shutterstock.com

While it’s understandably worrisome, the recent plunge in new home sales may not be an accurate reflection of post-COVID-19 housing trends.

Pending sales are still down 38.5% from year to year, but they have rebounded significantly after April 15. They are now up 6.2% from the previous week. Pending home sales don’t always end in completed transactions, but they can give an early signal of future sales.

A new Zillow analysis shows a renewed interest in the housing market as Americans adjust to this temporary normal.

Pageviews on for-sale listings on Zillow fell 19% over 12 months for the week ending March 22, but they have since largely recovered. They increased 18% year over year for the week ending April 15.

This suggests sellers and buyers are becoming more comfortable using virtual technology during the process while practicing social distancing.

Falling mortgage rates could also prompt home buying. In Fannie Mae’s latest housing forecast, the mortgage giant has fairly bold forecasts for the future of mortgage rates.

It says the average interest rate for 2020 will fall to 3% – before ticking as low as 2.9% in 2021.

If Fannie Mae’s mortgage rate forecast comes true, mortgage rates could fall below the record average for a year and a half. | Source: The Mortgage Reports

Such low rates could make home buying possible for people who can’t afford it now.

The housing market isn’t out of the woods. We will probably see home sales decline during the next few months as the economy collapses, but there’s light on the horizon.

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

Josiah Wilmoth edited this article for CCN.com. If you see a breach of our Code of Ethics or find a factual, spelling, or grammar error, please contact us.

Last modified: June 13, 2020 9:42 PM UTC

@SBChateauneuf

Stephanie has been writing about stocks and financial markets for several years. Based in Canada, she has written for The Motley Fool and Seeking Alpha. She received an MBA in finance and worked for National Bank of Canada. Check out more of her experience on LinkedIn + and follow her on Twitter. Reach her at stephanie.chateauneuf (at) gmail.com or visit her profile on Muck Rack here. Stephanie is a Trusted Journalist.