Mortgage Rates Are Lower
The Federal Reserve has implemented two interest rate cuts since the outbreak, which brought the yield on Treasury bonds down to almost 0 percent. When bond yields are lower, mortgage rates are lower too. While mortgage rates have dropped, the pandemic seems to have made mortgage credit harder to get. Chase, for example, now requires a credit score of 700 and a down payment of 20% to get a mortgage.
Home Builder Supply Lines Disrupted
According to the National Association of Home Builders, almost a third of home building materials come from China. That doesn’t include finished products like bathtubs, sinks, appliances, and more. Supply lines for all of these products and materials have been disrupted. This is starting to delay home construction at a time when it was just beginning to catch up with demand. Since the financial crisis in 2008, home construction has been playing catch up with consumer demand due to the cost of construction, construction labor shortages, and lack of available land.
Market Recovery
The housing market won’t start functioning normally until the threat of the virus diminishes. It appears that shelter-in-place orders, on average, cause a city’s new home listings to drop to a bottom after about one week. After a month or so passes, new home listings start to rise gradually. Zillow’s page views dropped dramatically after the pandemic hit, but some cities have seen their page views surpass last year’s numbers, when the market was functioning normally. This suggests that the demand for housing is still there, it’s just a matter of supply returning to the market.
All in all, it appears that the market will reignite once the virus allows it to function normally again. Pending home sales dropped dramatically in March but began to rise again in April. Recovery will be gradual and is also still subject to a second virus flare-up.
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