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As the U.S. housing market continues to chart its course out of the coronavirus slump, home prices seem to be sending mixed signals.
According to the latest report by the National Association of Realtors, the industry’s largest trade group, the U.S. median sale price for existing homes in May was $284,600, up 2.3% from a year ago. While this marks the 99th straight month of annual gains, the increase is the smallest in about six years.
Tech-based real estate brokerage Redfin reports a similar overall pattern in May across the 217 markets it tracks. In May, the median home sale price stood at $299,400 or a mere 0.5% higher than a year ago. Redfin says this is the tiniest increase year-over-year since February 2012, when home prices bottomed out following the Great Recession.
The half-percentage price appreciation in May compares to the 4.7% annual gain in April. Meanwhile, new inventory in May bounced up 35.6% from the previous month, even if it still remained 21.5% lower year-over-year.
After bidding wars to snatch the few abodes for sales, are home shoppers to catch a break? Not really.
Redfin’s lead economist Taylor Marr explains that the slowdown in price gains last month mostly reflects the completion of deals made in March and April, when the mixture of for-sale homes differed from the typical market composition.
“The homes that were left on the market were toward the lower end of the price range,” Marr says. “Those are really the homes that ended up selling. If we look at how close homes sold relative to their asking price, we saw a little bit of a slowdown but not very much.”
The pullback in the higher echelons of the housing market, which put downward pressure on prices, was most severely felt in a combination of expensive metros and those hardest hit by the virus. According to Redfin, median prices declined year-over-year in Seattle (a 1.7% drop), New Orleans and Dallas (both experiencing a decrease of 1%), in addition to three other metros.
Moreover, the share of abodes that sold above asking in May also dropped by 0.6% to an annual 25.2%. Yet, this hardly augurs the end of bidding wars, which flamed up a month or so ago, Marr says.
For one, as already stated, the May figures correspond to deals struck in March and April, when the nation’s housing market was still roiling in the immediate impacts of the coronavirus. As long as demand outstrips supply, competition among buyers, leading to above-asking offers, is unlikely to fade away.
“We’re seeing a rebound in terms of homes hitting the market, so supply is increasing,” Marr says. “But buyers are right there on the sidelines. That leads me to think that we’re not really going to make a dent in the inventory shortage. The number of homes for sale, especially per household, is at more than a two-decades low.”
Where home shoppers (at least, those willing to stick around in city centers) may find a respite, though, is in condominiums. According to NAR, the 340,000 existing condos that sold in May recorded a yearly median price decrease of 1.6% to $252,300. The median existing single-family home price was $287,700, up 2.4% from May 2019.
“Relatively better performance of single-family homes in relation to multifamily condominium properties clearly suggest migration from the city centers to the suburbs,” NAR’s chief economist Lawrence Yun said in a press statement. “After witnessing several consecutive years of urban revival, the new trend looks to be in the suburbs as more companies allow greater flexibility to work from home.”
While NAR advises against a month-over-month analysis of median existing home prices due to seasonal fluctuations, Zillow Z ’s Economist Matthew Speakman notes that from April to May, the median price for all housing types fell 0.7%.
“The small monthly decline in prices is notable and worth watching going forward — prices have never fallen in May from April in the history of the series,” Speakman writes. “Low inventory had been keeping upward pressure on prices, but it now seems buyers may be finding more room to negotiate and/or that more-expensive homes are lingering longer on the market.”
Recently, Zillow also reported a slump in its home value index, which measures monthly shifts in the Zestimate or the company’s property valuation tool. Skylar Olsen, Zillow’s senior principal economist, writes that home values grew at a monthly rate of 0.41% in April, before grinding down to 0.35% in May.
Although small, that change is “the biggest one-month slowdown since March 2019 and a possible indicator that the market is headed for home value declines in the coming months,” Olsen writes.
Zillow predicts a 1.8% drop in prices from February through October, with a recovery by the spring of 2021. Year-over-year, the decline is expected to level out at 0.7%.
Other industry experts, however, anticipate price appreciation unless new construction ramps up to meet demand. For now, June’s weekly sales data, which Redfin combs from local multiple listing services, shows that median prices are bouncing back. Sales prices for the first week of June grew 3.1% year-over-year, Redfin says, reflecting the improvements in market conditions over the previous month.
But the still uncertain economic recovery, especially the pace of adding back jobs, is also to play an important role in determining where home prices veer from here.
“The major risk and caveat is that if these unemployment numbers escalate into permanent job losses rather than temporary, eventually that could really have a drag on demand and would result in the market being slightly less competitive,” Marr says. “If that does happen, what keeps prices from really falling very far if at all, is that supply reacts in the same way.”