Leading up to the pandemic, the housing market appeared to have been posed for the strongest year since the Great Recession. However, with the onset of the pandemic and a number of Shelter-in-Place (SIP) orders implemented across the country, the housing market took a sharp turn downward - with new contract signings and new for-sale listings dropping by almost 50% by mid-April. Those early April weeks led to many questions on what the housing market will look through the rest of 2020.
Nevertheless, after hitting the trough in mid-April, housing market activity has started to rebound. By the end of May, new contract signings, a leading indicator to future closed sales, were actually higher - up about 8% - compared to the same week last year, while the new listings were down only 16% compared to last year.
But, while the pickup in housing activity appears strong and possibly not expected this early following the crisis, housing activity differs widely across metropolitan areas and is in part driven by the severity of the pandemic as well as stringency of SIP orders in local areas. The analysis below uses the data from the multiple-listing services (MLSs) to evaluate housing markets across 35 metropolitan areas prior to COVID-19 through the first week of June. The metro areas represent both large metro regions as well as smaller metros across the country.
Figure 1 summarizes some relevant market indicators across the metro areas. The first column summarizes the change in home sales in the first twelve weeks of 2020 compared to last year and prior to the declaration of the national emergency on March 13th. Strong start in home sales was particularly evident in Las Vegas, San Diego, Cleveland and Columbus, Philadelphia, Phoenix and a number of Texas markets. On the other hand, markets showing some weakness compared to last year included largely Seattle, San Jose and Washington DC. Also, the trends prior to COVID-10 do suggest stronger activity in relatively more affordable parts of the country while less affordable cities on the west coast have lost some of the momentum seen in 2019 sales activity.
The second column in Figure 1 summarizes year-over-year change in pending sales contracts signed over the 30 days ending on June 7th. Since pending contracts are a leading indicator, they are suggestive of what the total sales will look like 30 to 45 days following the contract signing. The change in pending contracts compared to last year varies notably across the metro areas suggested by a stark difference in the numbers shaded in green, indicating an increase, compared to those in red which indicate an annual decline.
The metros that have seen the biggest annual boost continue to be those that already had a strong demand prior to COVID-19, namely markets in Texas – Houston, Dallas, and Austin, Ohio’s Cleveland, Columbus, and Cincinnati, but also Jacksonville, Virginia Beach, and Kansas City. In contrast, some of the larger metropolitan areas, particularly on the California coast remain at half of the activity seen last year, though Northeast cities such as Washington, Baltimore, Philadelphia, Providence, and New York are also slow to see a rebound in housing activity. The three areas that stand out with the largest declines in new contracts signed are Milwaukee, San Jose, and Los Angeles. While the increase in housing activity appears to be correlated with expiration of SIP orders, increased activity in Ohio, for example, occurred seemingly before the SIP expiration on May 29th and is a continuation of strong trends seen prior to the pandemic. Interestingly too, more affordable Sacramento in California is seeing relatively stronger activity compared to the other California metros but also relative to where it started in 2020. Similar trend is seen in Austin, Jacksonville, and Kansas City which started the year relatively flat, but are showing encouraging trends in recent weeks.
Further, to understand where the home buyers and home sellers struck a balance amid these difficult times, Figure 2 traces the average share of homes that sold below the asking price across the 35 metro areas in the first five months of 2019 and 2020. First, note that the general decline from January to May is seasonal as we see more discounts during the winter months than during the summer. But, while 2020 started off with fewer homes selling at a discount, 70% in 2020 versus 73% seen in 2019, by the end of April, the 2020 share starts picking up again to reach almost the same rate seen in 2019, little less than 60%. Thus, buyers who closed on their homes after the onset of COVID-19 seemed to have been able to negotiate more discounts than those who closed prior. Nevertheless, sellers’ willingness to negotiate seems to have leveled off in May suggested by flattening of the 2020 line.
Figure 3 further breaks the data by the 35 metro areas and summarizes year-over year change in the share of homes sold below the asking price in the weeks prior to COVID-19, and in May, and compares the differences between the two. Specifically, Column A indicates the year-over-year difference in the share of price discounts between January and mid-March and a negative number suggests that there were fewer discounts at the beginning of 2020 compared to the same period in 2019. Column B indicates the year-over-year difference in discounts for the 4 weeks ending June 6th, 2020. The last column is a difference between columns A and B (note there may be rounding errors).
For example, in Seattle, the share of homes sold with a discount prior to COVID-19 was 17 percentage points lower in 2020 than in 2019. In contrast, in May 2020, there were no difference between the share of discounts compared to last year. Thus, the 17 percent point difference noted in the last column suggests a notable increase in share of discounts in May compared to that seen at the beginning of the year. Put another way, green shades in the last column suggest more discounts in post COVID-19 housing market than seen prior to the crisis.
The other metro areas seeing an important decline in price discounts are Sacramento with 13 percentage point spread, Milwaukee, San Diego, and a few others. On the other hand, buyers in Las Vegas, Atlanta, and Charlotte may be seeing an uptick in discounts in recent weeks.
Taken together, the onset of the pandemic is still relatively recent, and the lasting impacts will only be obvious as time passes and more data is available. But early data suggests that some regions have fared better than others and the trends seen prior to the crisis are continuing to drive their local markets.
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