This is not your father’s housing market.
Even if your dad lived during The Great Depression, the primary cause of the bursting of that housing market bubble was over speculation. The same law of supply and demand burst the bubble that ignited the 2008 housing market crash. However, the COVID-19 pandemic has created widespread disruption of the current American housing market. As we enter the “new normal,” what are the five signs that will indicate a housing market rebound?
Overview of Current Housing Market
According to Newtrals Neutral News, Zillow has predicted home sales will fall by as much as 60% before the end of spring. March 2020 home sales tumbled more than 20 percent from the previous year, with the National Association of Realtors estimating that by the end of 2020, the decline in home sales should settle to around 14 percent compared to 2019 sales. Zillow also states that because Millennials are entering the optimal age for buying first homes, there should eventually be a strong recovery for the American housing market.
When Will We Know the Housing Market Has Started to Rebound?
Utopia Management has highlighted the depressed housing market in Southern California, especially in typically robust economic areas such as Orange County. The rental market remains strong at this time. Like other property management companies, Utopia has their finger on the pulse of the market to guide investors on when to buy.
The Curve Flattens
We have heard health experts like Dr. Anthony Fauci tout the importance of the curve flattening for Coronavirus hospitalizations. The same curve has to flatten before we expect any improvement in the American housing market. In fact, before any element of the American economy recovers from the coronavirus, the number of hospitalizations for the disease must first decline.
No More Stay at Home Orders
Although we had plenty of time to pursue other interests during stay at home orders, the fact remains that many of us are excited to get out and smell the proverbial roses. Yes, virtual home tours do a great job of introducing potential buyers to their new homes. However, nothing beats using all five senses to walk through an in person home tour. Plus, you can ask questions of the agent or owner showing a home. An end to stay at home orders translates into an increase in home sales.
Two Important Economic Indicators Rebound
The pandemic has stretched our credit limits to the maximum, as well as made a negative impact on American employment statistics. For the housing market to recover from the pandemic, we need to reduce the amount of credit we have taken out to pay for essentials during the crisis. We also need to see the crippling unemployment rate head towards the rate we had before the pandemic. There might be a seismic shift in the American labor force, but we need to recover the jobs lost because of the pandemic to see a rebound in the housing market.
Hardest Hit Industries Must Recover
By hardest hit industries, we mean hotels, airlines, restaurants, and theme parks. Service-related industries often form the economic backbones for communities. For example, consider the negative impact the pandemic has placed on the housing market in Anaheim, CA. Not only are hotels and restaurants shuttered, the primary source of revenue for the hospitality industry-Disneyland-might not open for several more months. The businesses most damaged by the coronavirus need to return to some semblance of financial health.
This Curve Needs to Increase
On January 20, when the first positive test came back positive for the Coronavirus in the United States, the yield on a 10-year bond was 1.56%. Fast forward six weeks later to early March, and the yield for a 10-year bond declined to a paltry 0.32%. Massive job layoffs ensued, and the yield for 10-year bonds remains at near historic loans. When the 10-year bond curve starts to increase to more than 1.0%, then we should be on the road back to economic growth.
What Areas of the United States Will Have the Strongest Housing Markets?
With all the doom and gloom, are there any housing markets in the United States that have avoided the negative impact delivered by the pandemic?
It should not be a surprise that Idaho has weathered the housing market storm. Both Boise and Idaho Falls have experienced strong population growth since the start of the new millennium. Both cities also benefit from a much more diverse economic base. What was once a hotbed for agriculture and forestry has morphed into an economy transformed by the digital revolution.
As the state where the first documented case of COVID-19 occurred, Washington boasts one of the strongest housing markets in the United States. This is especially true for Spokane and Olympia, which is the home of the state capitol. The population of Olympia has grown by more than 12 percent since 2010. High tech still fuels the strong economy of Seattle, and after the city emerges from the pandemic, it should be poised to take off economically.
The housing market struggles experienced by its neighbor to the west has not spilled over into Arizona. Phoenix is ranked as one of the top 10 long-term housing markets by Veros. Although the city was one of the hardest hit areas during the 2008 financial meltdown, several favorable housing factors have changed the outlook for Phoenix moving past the COVID-19 pandemic.