May ‘20’ is not as encouraging for home purchases as May ‘19’ had been and we needn’t be told the reason for it. Closed transactions dropped by 3.9% compared to April and a mammoth 33.7% on the Year-over-Year chart.
Each housing market in the country has reported an annual drop in double figures (Iowa cutting the best picture with a 14.3% drop while Detroit the sorriest picture with a 64.8% drop).
Inventory constraint hasn’t helped one bit. Housing supply in May is lowest since 2008. It has come down by 25% compared to May ‘19’. Barring Kansas, Chicago, and Indianapolis, inventory has not risen anywhere in the country.
Housing supply has come down from 3-month to 2.5-month in a Year-over-Year comparison. Supply was averaging 3.7-month in April. A radian data concludes that the hike in home prices in May could be put down to constricted inventory. Home prices shot up by 7.8% Year-over-Year and 4.5% since April.
There is a quiet expectation that the market will see a change once the stay-at-home guidelines are lifted. To paraphrase Adam Contos, CEO Remax, the spring season was put off by many weeks and all that pent-up demand could play a significant role in the coming months. Unless Covid-19 plays truant again, inventory and unemployment rate will largely determine how strongly the housing market rallies.
The construction sector has come around a bit but there is nothing to write about yet. Yes, there is that sniff of an increase but overall, the market has fared much worse compared to the same time, last year and poorer than was expected for May.
Mike Fratantoni, Chief Economist of the Mortgage Bankers Association put it in figures. Year-over-Year for the Single-family starts was down by 18% according to an MBA report. Year-over-Year starts was down by 33% for the ‘Multifamily’. The silver lining is New Permits. It is down by only 9% compared to last year and this might mean good days shortly ahead.
Mr. Fratantoni observed that low inventory might kill the expected housing demand. The only good thing to emerge out of low inventory is that home prices shouldn’t drop anytime soon.