Home-buying demand took another step towards recovery, gaining strength for the third week in a row, according to Redfin’s latest weekly report. After plummeting as much as 34% in March, home-buying is now down only 15% from pre-coronavirus pandemic levels on a seasonally-adjusted basis for the seven days ended on Sunday, April 26.
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So far, the reality is a more modest increase in new listings and pending sales. In the seven days ended April 24, almost 53,000 new homes hit the market compared to just over 48,000 for the seven days ended April 13—the date new listings hit the lowest level over the past two months. More new listings has led to more sales, with pending sales up from fewer than 31,000 in the seven days ended April 13 to more than 32,500 for the seven days ended April 24. Despite the increase in new listings, during the same period, there were fewer than 700,000 homes for sale in Redfin markets across the U.S., which is the lowest inventory level Redfin has seen anytime in the past five years.
Some of the new inventory hitting the market may be coming from buy-and-hold investors. Since the beginning of the pandemic, Redfin has heard stories of Airbnb landlords with sudden unexpected vacancy putting their homes up for sale. This week, Redfin started to hear more long-term rentals hitting the market. Marshall Carey, a Redfin agent in Washington D.C., said several clients decided to list because the college students who normally lease their units have headed home early. Across the country in Tacoma, Washington, Redfin agent Amber Allin has clients who are selling several long-term rental properties to free up cash for investments outside of real estate.
Overall prices are up just a touch, affordable homes are still selling like hotcakes
Even though some investors may be headed for the exits, prices have held steady. For the seven days ended April 24 the median listing price was $308,000, up 1% compared to the same period the prior year. Octavia Valencia, a Redfin agent in Atlanta says, “Buyers and sellers are in a deadlock. Buyers are asking ‘is now the right time,’ and making more conservative offers, but sellers are not willing to come down on price.” Graham Rogers, a Redfin agent in South Carolina added, “In the end, buyers are paying up to hit the seller’s bottom-line number.”
Affordable, single-family homes is the one segment of the market where sellers are still firmly in control. Agents across the country are reporting that these homes often generate bidding wars with prices sometimes escalating tens of thousands of dollars above the asking price.
At higher price points, homes have to be well-priced and move-in ready. Rogers added, “Unless they’re looking for a fixer, buyers want everything to be done. People aren’t looking to spend an extra ten to fifteen thousand dollars to fix the place up, and now you don’t know when you can get contractors into your home. It’s tough to get bids. It’s tough to get a timeline.”
Rates are low, but deals are taking longer and some buyers are struggling with lending requirements
Mortgage rates ticked down this week to about 3.25%. That’s almost 0.5% lower than they were at the beginning of April and approaching the all-time lows seen back in February. Fannie Mae forecast that rates will continue to fall and could dip below 3% for the first time ever in 2021.
Lower rates are making monthly payments more affordable; the 0.5% decline in rate reduces the monthly payment on a $300,000 home by $65 per month. But it is taking more patience to bring a deal together. Time to close a transaction once the buyer and seller have agreed on price increased to almost 31 days for the seven days ended April 18. That’s up from 27 days in the last week of February before the pandemic started and the longest closing time we’ve seen since July of 2017.
Lenders are still overwhelmed by the boom in refinance applications driven by the low rates, and now appraisals are taking longer due to coronavirus-related work restrictions. Carlos Barrientos, a Redfin agent in San Francisco, reports that appraisers have also gotten more conservative. “Appraisers will look at three similar homes and take the lowest of the three rather than taking an average. Even if one home has a great view or something special, they aren’t giving out any extra credit.” When this happens, it kicks off a whole new negotiation between the buyer and seller over how to cover the difference because lenders will only lend up to the appraised value. Barrientos added, “On top of appraisals, some buyers are struggling with lending requirements. They have 10% down payment, but suddenly the bank requires 20%. Now they have to wait.”