Home Market Could Take a Hit From Economic Headwinds
The cost to finance a home purchase has fallen to near the lowest levels ever, which is good news for homebuyers. But the stock market is seeing brutal declines, and dark clouds are gathering over the U.S. economy. There’s a tug of war in the housing market between cheap home financing and growing economic dread caused by the coronavirus outbreak.
Economists are split over which way potential homebuyers will be pulled. “There is a lot of uncertainty over how the coronavirus will evolve, which makes it challenging to project next week, let alone the spring buying season,” said Frank Nothaft, chief economist at CoreLogic. “But my gut is that record low mortgage rates and an economy with a 50-year low in unemployment rate will carry the day."
Jim Gaines, chief economist for the Real Estate Center at Texas A&M University, isn’t so sure that historically low mortgage rates will outshine economic fears with consumers. “Right now, we are not 100% sure housing will win,” Gaines said. “We are a little bit dubious about the housing market.”
The first two months of the year have been strong for the Texas home market, and home mortgage rates plunged to unheard of lows last week. In Dallas-Fort Worth alone, home sales are up 14% from a year ago. And February saw the largest number of home sales ever handled for that month by North Texas real estate agents.
“The February statistics were really good — absolutely great,” Gaines said. “ But it was pre-virus. “We think the second quarter of this year — April, May, June — will be the down time,” he said. “That’s usually the best time in the housing market, but this is not a usual year.” In Texas, the steep slide in oil prices will negatively affect metro areas including Houston and Midland-Odessa, which have large oil and gas sector workforces, Gaines said. “The D-FW area really shouldn’t feel much of that,” Gaines said. “The housing sector will probably win out in your market. Dallas’ main concern is what the national economy does,” he said. “It’s going to slow down — no doubt about that — but nobody knows how long or how deep it will be.”
Dallas-Fort Worth leads the country in homebuilding. And North Texas had a record number of home sales last year by real estate agents.
“Mindful that the outlook is cloudy as we wait for data on the virus impact and its effect on consumer confidence, a market like D-FW would be in a better position to benefit from today’s lower rates, to the benefit of home sales and home construction,” said Robert Dietz, chief economist for the National Association of Home Builders. “The impact of lower oil prices, however, is an additional concern for states like Texas, Oklahoma and North Dakota.”
Nationwide mortgage rates for 30-year loans were at an all-time low of 3.29% last week, according to mortgage giant Freddie Mac. And they’ve gone even lower since then. “Rates are going to be lower,” Dietz said. “Current Treasury rates imply 30-year fixed mortgages with rates below 3%. However, it is important to note, low rates only benefit buyers that have a down payment and job security,” he said. “The macro uncertainty and higher recession risk in today’s environment will reduce consumer confidence in the weeks ahead. So to the question of which will win out?”
More than a third of home sellers just surveyed by the National Association of Realtors said they believe the appeal of lower mortgage costs will override pandemic fears...
