February home sales were brisk as buyers took advantage of low mortgage rates, but that trend could change as borrowing costs rise and concerns about the coronavirus escalate.
Sales of single family homes, condos and co-ops were the highest they’d been in 13 years, according to the National Association of Realtors. Home purchases were also 6.5% higher than the previous month.
“February’s sales of over 5 million homes were the strongest since February 2007,” Lawrence Yun, NAR’s chief economist, said in a statement. “I would attribute that to the incredibly low mortgage rates and the steady release of a sizable pent-up housing demand that was built over recent years.”
But February’s activity occurred before concerns about COVID-19 ratcheted up, roiling financial markets, triggering layoffs, and reducing the ability to house hunt in person amid advisories to stay home.
“The coronavirus has undoubtedly slowed buyer traffic and it is difficult to predict what short-term effects the pandemic will have on future sales,” Yun said.
Home buying predicted to slow down
Fitch Ratings says that not only might fewer people buy homes, those who do go through with a purchase may end up paying less.
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“The broadening spread of coronavirus in the United States will slow down home buying activity and possibly lead to a decline in home prices with a widespread and protracted period of containment,” the firm said in its latest quarterly home price report.
Interest rates are also on the rise, as lenders try to slow the flood of applications they’ve received in recent weeks as home owners and buyers rushed to lower their borrowing costs.
The average interest rate for a 30-year fixed mortgage was 3.65% this week, the highest since mid-January, according to Freddie Mac. It’s the most significant week to week jump since November 2016. Only two weeks ago, those rates averaged 3.29%, a record low.
As rates began to climb last week, mortgage applications dropped 8.4% from a week earlier, according to the Mortgage Bankers Association. Applications to refinance also decreased, dipping 10%.
If home buying dips, expect a bounce back soon
But Yun says he believes home prices should hold.
“Unlike the stock market,” he says, “home prices are not expected to drop because of the ongoing housing shortage and due to homes getting delisted during this time of crisis.”
And once the crisis ebbs, house hunting should start up again in earnest.
“Once the social-distancing and quarantine measures are relaxed, we should see this temporary pause evaporate,” Yun said, “and … potential buyers return with the same enthusiasm.”
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