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May 29, 2020

NAR economist Yun sees signs of life in CT residential market

NAR Chief Economist Yun on Thursday morning’s NHMR web conference: ‘Everything lights up in 2021,’ he predicted.
By Michael C. Bingham

The residential real estate market both nationally and in Connecticut hit a historic trough in April due to the economic shutdown associated with the coronavirus pandemic. 

But the lower numbers of pending contracts and closed sales may be a “temporary disruption” to the long-term real-estate market, and trends that the COVID crisis accelerated may portend bright prospects for the residential market in both Fairfield and New Haven counties.

So said Lawrence Yun, chief economist for the National Association of Realtors. He spoke to a Thursday morning Zoom conference of the New Haven Middlesex Realtors Association.

Nationally, pending home sales decreased in April, making two straight months of declines, according to the National Association of Realtors. The group’s Pending Home Sales Index (PHSI www.nar.realtor/pending-home-sales), a forward-looking indicator of home sales based on contract signings, fell 21.8% in April. Year-over-year, contract signings shrank 33.8%.

“With nearly all states under stay-at-home orders in April, it is no surprise to see the markedly reduced activity in signing contracts for home purchases,” said Yun.

The latest pending home sales numbers reflect the most dramatic decline since NAR began tracking such transactions in January 2001. However, Yun expects that April will be the lowest point for pending contracts, and the month of May, consequently, will be the lowest point for closed sales.

“While coronavirus mitigation efforts have disrupted contract signings, the real estate industry is ‘hot’ in affordable price points with the wide prevalence of bidding wars for the limited inventory,” he said. “In the coming months, buying activity will rise as states reopen and more consumers feel comfortable about home buying in the midst of the social distancing measures.”

“Given the surprising resiliency of the housing market in the midst of the pandemic, the outlook for the remainder of the year has been upgraded for both home sales and prices, with home sales to decline by only 11% in 2020 with the median home price projected to increase by 4%,” Yun said.

’Temporary disruption’

Yun told his NHMR audience that he sees the COVID pandemic as a “temporary disruption” in the long-term housing market outlook. Looking ahead, “Everything lights up in 2021,” said Yun, who predicted a “V-shaped recovery for the housing market” beginning with the arrival of summer.

Why? For one thing, historically low mortgage interest rates render real estate a sturdy hedge against the inflation many economists predict will result from the $3 trillion-plus explosion in federal spending to combat the health crisis. The ability of buyers to lock in at low mortgage interest rates today, Yun said, represents “a rare golden opportunity” for buyers even as residential real estate prices rise in many markets.

Those include metro New York and Connecticut. As early as the vernal equinox, higher-income New Yorkers began looking to get out of Dodge and quit the five boroughs for single-family homes in the suburbs, especially Fairfield County.

Traditionally lofty residential prices in lower Fairfield County, combined with an existing housing shortage in any markets, have combined to drive many prospective homebuyers further east in Fairfield County and into New Haven County, where Milford, Orange and the Elm City have been tracking shrinking inventory and rising prices even before the pandemic.

“There was already very tight [housing] inventory in the Connecticut market, and during the pandemic inventory went down even further,” Yun said.

Yun’s forecast for calendar 2020: “The first quarter was actually running 5% ahead of the 2019 first quarter in terms of home sales,” he said. “The second quarter [April-June] will be absolutely awful because of the lockdown. The third and fourth quarter will see some improvement from that, but will still be sown from [the same period] a year ago.”

But hope springs eternal.

“Going into 2021, everything should be turning positive in home prices and home sales,” Yun predicted. For buyers and investors, “It’s a matter of just holding on tight during this disruptive period.” Brighter horizons beckon.

Maybe.

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