The start of 2020 put Hawaii's housing market into a big ol’ slump. The coronavirus pandemic led to strict stay-at-home orders enforced throughout the state. For a short time in March, the Hawaii housing market was essentially frozen in place.
In the proceeding weeks, the freeze began to thaw, and by the start of the summer the market was heating up. Buyer demand began to rise, sales were beginning to rise, and more homeowners came around to the notion that it actually might be a good time to sell. This sudden change of course was one of the largest monthly surges in almost 40 years.
Now, the question folks are asking is, “How long will it last?” Will housing prices continue to rise the rest of this year? Or is it too good to be true?
Are you curious about how buyer demand is impacting the housing market this year? Here’s everything you need to know for fall of 2020!
Housing Prices During the Pandemic
At the start of the pandemic, the housing market chugged along at a snail’s pace. While the most motivated buyers and sellers continued in their pursuits, many more elected to postpone their buying or selling for a later time when pandemic restrictions loosened.
Those who did buy during this time saw record-low mortgage rates. The pandemic caused mortgage rates to drop as low as 3.29% for a 30-year conventional mortgage, at the time a 50-year record low which has since been lowered even further.
While homebuyers enjoy these low mortgage rates, housing prices are rising due to limited availability of listings. Those looking to buy have a smaller selection of homes available to purchase, and what is available is selling for more money than ever due to increased demand. Because of this scarcity of listings, many buyers are eagerly waiting in anticipation for more sellers to bring their homes to market.
As is natural in economics, limited supply has led to an increase in prices. While rising prices have become the trend in the last decade, the rise has been even more forceful in 2020. In May of 2019, the median closing price in the United States was around $278,200 which grew about 2.3% by May of 2020.
For 3 continuous months, housing sales declined. It wasn’t until June that the housing market finally hit a turnaround point.
Home sales have spiked, particularly in existing homes, but also in new construction. From May to June of 2020, there was an increase of around 20% more home sales which includes condominiums, townhomes, and single-family homes. This is largely due to increased buyer demand.
While many buyers and sellers enjoy success in this recovering, booming market, some are wondering about what the Fall will bring. There have been second and third waves of the pandemic affecting different parts of the globe. What will the housing market look like for the rest of 2020?
Is the Housing Market Recovering?
June through September showed considerable promise in regards to a recovering housing market. Home sales all over the country continue to rise, as they did throughout the summer.
The country’s coasts are leading the recovery, showing greater sales than even before the pandemic hit in March. The end of July showed a rise in not only sales but in demand and price as well.
Is Buyer Demand Still Growing?
Buyer demand is continuing to grow as we enter the Fall Season. By the end of July, the demand index was almost 17 points above that of January. Analysts calculate this number by tracking search activity online.
Some may find this surprising, as house prices are rising and inventory remains low. But with rock-bottom mortgage rates, many homebuyers want to get in while it’s good. On the other hand, many home sellers are still waiting before putting their homes on the market.
Researchers believe buyer demand will continue to grow throughout the Fall of 2020. The biggest challenge sellers are facing is that a large number of them are also buyers.
Growing buyer demand and limited inventory can make finding the right new home to buy a challenging process these days. Some prospective sellers are finding it easier to refinance and renovate their current home than to find something better.
Other issues sellers face include health and safety concerns during the coronavirus, along with potential job loss given the tumultuous state of the economy.
Buyer demand will likely fade towards the end of the year, as it always does in the holiday season. But this fall, activity should remain very strong compared to the spring market. Millennial buyers will continue to make up a huge part of the buyer demand as they search for their first taste of home ownership.
Will current home buyer demand be sustainable throughout the rest of the year? If more sellers come to market this fall, buyer demand may be satiated. But if buyers are still fighting for a small supply of listings well into next year, then high demand isn’t going anywhere either.
Why Housing Prices are Rising
Like buyer demand, housing prices are also rising. Compared to the median home price in January, homes in September are about 5.5 points above January prices.
What's causing this rise in house prices? The main 2 factors influencing home prices are a record low housing supply and a growing buyer demand. The few sellers on the market feel more confident asking for more as they’re likelier to make a sale with such a large demand. Bidding wars are becoming more frequent.
Typically during an economic downturn, housing prices remain stagnant, or grow more slowly, or even fall. This year has been a clear exception, as housing prices have accelerated upwards throughout the summer.
This upward trend may slow later this year and early into next year. Future economic impacts remain to be seen, and a hit to the economy could slow the rate of buyer demand and increasing home values. In any case, it’s unlikely that home values will rise at such a quick pace for many more months to come, though they will likely continue to rise.
Changes in Home Sales
Since May, home sales have risen monthly by 16.6%. There has also been an increase this year of 6.3% since June of 2019.
Most buyers are looking for affordability and space. The combination of stay-at-home orders, working from home, and schooling from home, is driving people to look for more spacious places to live. Of course, this is a greater challenge given the limited inventory of active listings.
Listings are spending less time on the market compared to a year ago. Buyers and sellers are connecting and closing sales much faster than before.
Is Housing Supply Increasing?
Since the spring, supply of listings has been slowly increasing. Compared to years before, however, the supply is still growing at a much slower rate than in January. More sellers are re-entering the housing market, but with a certain amount of caution.
Some prospective sellers express concern that their homes are unlikely to sell due to social distancing. Some are unwilling to show their homes in person and others are waiting until the pandemic passes. After months of working safely according to state and local regulations, these fears are largely unfounded, though it’s always good to be safe.
The reopening of the United State’s economy plays a key role in the housing supply. The current trend is an increase in housing supply, but everything hinges at least in some part on the future twists and turns of the COVID pandemic.
Housing Market Predictions for 2021
The overall number of home sales in 2020 is likely to be significantly less than the year before. Many houses will sell this fall, indeed, but the overall rate will likely drop to one not seen since the early nineties.
Many analysts believe the economic cost of the pandemic will continue to burden the economy in 2021 and for years to come. The projections for the 2021 housing market have also lowered from 6.3 million to 6 million sales.
A few likely scenarios for the rest of 2020 and into 2021 include:
- Housing prices will continue to grow, but growth may slow
- Mortgage prices will almost certainly remain at record lows
- Housing availability will remain lower than normal, but should continue to rise through the fall
- Buyers will continue to prioritize affordability and space, both inside and out
- Buyer and seller confidence will continue to rise, barring any unfortunate developments in the pandemic
The unforeseen health crisis and its economic impacts will continue to influence buyer demand and listing supply. Some of the largest metro areas in Hawaii and throughout the United States have seen an increasingly tight inventory of listings in recent months. If more sellers decide to jump into the fray, this trend could reverse in a busy fall selling season.
The affordability of homes remains an ongoing struggle and will be an even greater challenge as prices rise. Before the COVID pandemic, many younger buyers struggled to find a home that fit their budget.
Unfortunately for them, housing prices will continue to rise for the rest of 2020. Newly constructed homes will not be much help, as homebuilders continue to focus on mid-high to high-end homes rather than affordable housing solutions.
The Housing Market is Looking Up
Since the lull in early spring, the housing market has been looking up. There have been glimmers of hope in the pandemic, giving the economy a chance to breathe. Uncertainties still abound, but buyer demand remains strong thanks to low mortgage rates.
If you’re looking to buy or sell a home this year, now is the time. Buyers can enjoy all-time low mortgages. Sellers can benefit from selling their homes at higher prices and potentially a faster rate than before the pandemic.
Are you looking for a home or planning to list yours? Do you know a friend or family member who is? Let’s connect for a no-pressure conversation. We’re happy to lend our expertise and carefully guide you through every step of the home-buying and selling process!