“ROBUST” HOME SALES beat coronavirus so far

Due in large part to a strong desire to “nest” in isolation instead of shelter in a home they have already packed up and mentally left behind them, new home sales continue to be “robust,” reported Hovnanian Enterprises Inc. chairman and CEO Ara Hovnanian to Fox News earlier this week. Hovnanian Enterprises is a U.S. real estate company specializing in marketing, design, construction, and sales of new homes, including single-family, townhouses, condominiums, and retirement homes[1].

“New sales closings have been progressing regularly,” Hovnanian said on March 17. “Customers want their home. They want to nest. If they are going to be inside for a while, they want to do it in their own home.”

Coming Off a Strong Surge

U.S. new-home sales started 2020 off strong, surging to highs not seen in more than a dozen years this past January. Many real estate analysts believe that low mortgage interest rates could forestall a housing meltdown even with coronavirus interfering with the traditional home-purchasing process. At present, brokers and agents are either opting out of open houses completely, attempting video showings, or finding few people are willing to show their homes or attend an open house.

Although the National Association of Realtors (NAR) initially predicted there would be about 5.5 million transactions on previously owned homes in 2020 (up from 3.5 million the two years prior), it now appears new-home sales could take a bite out of that number thanks to lower interest rates granting some buyers substantially more purchasing power and a perception that a new home is safer than a previously owned one.

“I thought that there would be a steady increase from January pretty much throughout the rest of the year,” said NAR chief economist Lawrence Yun. “Obviously, we hit a major speed bump.”

California Markets Could be Hardest Hit

That “speed bump” could be particularly problematic in California, where the California Association of Realtors (CAR) currently predicts in its revised 2020 forecast that the “wealth effects” from the coronavirus will impact mainly the top end of the market.

“Some shift in the market is expected as households become less wealthy, which will reduce demand for real estate,” CAR analysts wrote. “This could have larger consequences for the top end of the market, where financial market wealth is often used as a source of funds for luxury homes, second homes, and investment properties.”

CAR went on to say that it is “likely to revise its 2020 forecast downward,” but hopefully added, “If the current economic forecasts of modest declines in GDP growth are realized, the effects of lower rates should help to offset the effects of a slower economy and increased economic uncertainty such that California would still achieve a modest price improvement in both home sales and prices this year.”[2]

Of course, given that some of the bleaker scenarios envision a possible 13 percent GDP loss in Q2 2020 in the United States (Deutsche Bank), that optimism might be misplaced.

How are you reacting to the COVID-19 pandemic? Do you still plan to buy or sell real estate this year?

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[1] https://www.foxbusiness.com/real-estate/home-sales-coronavirus-outbreak

[2] https://www.car.org/knowledge/pubs/newsletters/newsline/covid31120

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