In Boulder we are having a late season snow day. We are working our way up to a foot of fresh, wet spring snow. Today is a nice day to be at home. I started these weekly updates roughly a month ago, just after the ‘stay at home’ orders were made in Colorado. Those orders have not been lifted and the effect throughout the world has been and will continue to be quite staggering. In this post, I will quickly highlight the activity in the Boulder area real estate market and then think aloud as to what we might see when the economy is un-paused.
Just over a week ago the Attorney General of Colorado and the Colorado Real Estate Commission gave clarification regarding the essential services provided by the real estate industry which are exempt from the Governors ‘stay at home’ orders. Essentially we were directed that marketing efforts such as: listing appointments, showings and open houses are not essential and should be avoided. All functions that facilitate transactions working toward a closing, such as inspections, appraisals, walk-through’s and closings can be performed using social distancing safety protocols. It’s clear that this is not business as usual. The activity statistics bear this out.
For a larger view of the charts below just click on the image.
Technical notes regarding the gathered statistics, feel free to skip this paragraph. The graphs above are indicative of the market activity but there are a few factors that might make them less accurate than normal. The vast majority of showings are set through a company called Showingtime and this is where I get the showing statistics. However, given the personal nature of showings right now, vacant vs. occupied, health questionnaires, under contract vs. active… I suspect that a number of showings are being set directly with the listing agent. The weekly Under Contract chart shows the number of homes that change their status in the IRES MLS system to Active/Backup on a weekly basis. This allows continued showings and backup offers. There is another status, ‘pending’ which also indicates an accepted contract but signals no backup offers and no more showings. Many times properties that are initially market ‘active/backup’ are later changed to ‘pending’ when certain contingencies are met. I try not to double count by not including pending listings and in the end this consistency allows for proper comparison over time. However, I suspect that as a percentage, more properties would go directly to the pending status right now and therefore the numbers for under contract may be slightly under counted.
Because of the lag time between contract and closing, the number of closings is still hanging in there. But as we move into May and June our current activity will be reflected in very low closings.
The debate is going on in all sectors of the economy about whether this will be a “V” shaped recovery or one that lingers into a deeper recession. The longer this goes on the harder it will be to turn on the switch and expect that all will be well. Damage is being done to the balance sheets of governments, companies and individuals and when we do go back to work it would be naive to think that all of the 16 million newly unemployed would be hired right back. Unexpected events like this (aren’t they always unexpected?) catch many with their pants down (so to speak). From governments down to individuals, it seems that not enough planning is done to withstand the unknown challenges of the future. Therefore a furlough of six weeks for an individual who is living paycheck to paycheck has effects both up and down the economy.
Factors that will help toward a “V” shaped recovery in real estate:
- In comparison to the Great Recession and its affect on real estate, we as a whole are in much better shape than we were a dozen years ago. Mortgage reform has forced homeowners to have more equity and the long bull market has enhanced that position for many.
- Speculative buying and using your home as an ATM to fund an upside down lifestyle have not been prevalent lately.
- Low interest rates.
- Banks are in better shape, so competitive mortgages should still be available.
- With so much time at home buyers may realize that they need a different situation.
Challenges for the housing market going forward:
- Consumer confidence has been negatively affected.
- First time buyer market will be depleted for a time with the break in income for many.
- When restrictions are lifted, there may be a big supply of homes coming on the market which may not be matched by an equal demand.
- A supply/demand imbalance will result in homes staying on the market longer. If the imbalance persists, it will put pressure on prices.
- We have been in an eight year expansion in the real estate cycle. Signs were pointing toward a gradual shift even before the Covid-19 recession. My guess is that this will shift us toward a shift in the cycle. Remember cycles are normal.
I’m taking this opportunity to get some projects done around the house. I hope you are staying productive and positive as well.