U.S. home sales fell at their sharpest rate in a decade in March, as the number of contracts signed to buy existing property plunged sharply because of the coronavirus outbreak. Despite the dramatic downturn, optimism remains that the low interest rates on offer from the best mortgage lenders will help shore up the housing market in the short-term and that the slump will eventually prove short-lived.
According to the latest data from the National Association of Realtors (NAR), the headline Pending Home Sales Index (PHSI) decreased 20.8% in March, with contract signings dropping by 16.3% year-on-year.
Unsurprisingly, the pain was felt right across the country, with signings plummeting in all four major U.S. regions, including a 26.8% decline in the West over the month, down 21.5% from a year ago, and a 22.0% decrease in March in the Midwest, a fall of 12.4% year-on year. At the same time, pending home sales in the South sank 19.5% over the month, and 17.8% from March 2019, while the Northeast PHSI dropped 14.5% in March, and was 11.0% lower than a year ago.
Peak selling season on hold
Traditionally, March heralds the beginning of the annual peak U.S. selling season, with the better weather resulting in rising home searches and households with children readying themselves to move during the school summer break. Indeed, just a month earlier, in February, the pending sales index had hit a three-year high, even as the first rumblings of the coronavirus began to hit the economy.
However, the downturn quickly gathered pace in March as lockdown restrictions took hold, including in-person home showings. The rapid rise in unemployment is also likely to have seen the plug pulled on many home sales, with the economic uncertainty affecting the confidence of buyers to commit to a deal.
Optimism amid low mortgage rates
Yet not all momentum has been lost, with buyers who remain in a position to carry on with their purchase enjoying the opportunity to take advantage of record low interest rates, and sellers benefiting from elevated prices.
“The housing market is temporarily grappling with the coronavirus-induced shutdown, which pulled down new listings and new contracts,” said Lawrence Yun, NAR’s chief economist. “As consumers become more accustomed to social distancing protocols, and with the economy slowly and safely reopening, listings and buying activity will resume, especially given the record low mortgage rates.”
Further optimism is provided by a recent NAR flash survey which found technology tools such as virtual tours and e-signings are increasingly helping connect buyers and sellers - 58% of realtors reported that buyers are using virtual tours and 43% said buyers have taken advantage of e-closings. Indeed, such is the confidence that those looking to move will adapt and embrace new ways of getting a deal done, it is even suggested that property prices could end 2020 higher than where they started.
“Although the pandemic continues to be a major disruption in regards to the timing of home sales, home prices have been holding up well,” Yun added. “In fact, due to the ongoing housing shortage, home prices are likely to squeeze out a gain in 2020 to a new record high. I project the national median home price to increase 1.3% for the year, though there will be local market variations and the upper-end market will likely experience a reduction in home price.”
Despite being confident that the dip in transactions will be temporary, Yun admits that the absence of a Spring buying season is likely to see home sales fall 14% over the year overall, even if there is a bounce-back later in the year.
However, for those whose finances remain in good enough shape - and in particular for those who are willing to embrace the technology available from the top mortgage lenders and best refinance mortgage companies to help see a deal through to completion - that dream move might not have to be put on hold.