In this Real Estate News Brief for the week ending February 29th, 2020… we have an early launch to spring home sales, concern about the coronavirus, and top cities for population growth.
We begin with economic news from this past week.
The spring home buying season is off to an early start. New home sales rose 7.9% in January. That’s more than 18% higher than January of last year. It’s also the highest level of sales since July of 2007. That’s despite higher home prices. The median was $305,400 a year ago. According to Realtor.com, it’s currently $348,200.
A recent surge in home price appreciation has contributed to the higher price tags. The S&P CoreLogic Case-Shiller 20-city index shows a 2.9% year-over-year increase in December. The cities with the fastest rising prices continue to be Phoenix; Charlotte, North Carolina; and Tampa, Florida. (1)
Pending home sales for existing homes are also higher, despite the ongoing inventory drought. The National Association of Realtors says they were up 5.2% in January. That’s a big jump, but it also comes after a December drop in contract signings. Most of those sales are happening in the South and the Midwest.
The latest report on economic growth shows a GDP rate of 2.1% in December. That doesn’t factor in the impact of the coronavirus however. Economists say the global spread of the virus could take a big bite out of first quarter growth. Travel-related businesses and those with connections to China, like Apple, are already dealing with the fallout.
Consumer spending is a big part of our economic growth, and January numbers show a modest .2% increase. Income rose about three times that rate, at .6%, but that number also includes a cost-of-living increase for Social Security, and tax credits linked to the Affordable Care Act. The coronavirus threat is expected to keep consumer spending at subdued levels.
Inflation also remains subdued. It was up .1% last month. That brings the yearly rate of increase to 1.7%. Consumer confidence was high in early February, but that’s before concern grew about the virus. We may have to wait until the next report for a more relevant reading.
Mortgage rates dropped back down last week. Freddie Mac says, the 30-year fixed-rate mortgage was down 4 basis points to 3.45%. Economists say it’s getting close to an all-time low of 3.31% in 2012. They say we could hit that level again if the 10-year Treasury keeps falling. It fell to its lowest level ever last week and that could encourage lenders to cut mortgage rates.
In other news making headlines…
The ‘Coronavirus Clause’
The coronavirus virus is creating the need for a special sales contract contingency. Inman news reports, the “‘coronavirus clause’ is now a thing.” (2) The report cited a Bay Area realtor who created a special contingency because the seller was quarantined in China, and could not get back in time to close the deal.
The sale involved a condo that was supposed to close in 21 days. The seller ended up paying for an extension of the 30-day mortgage rate lock, and agreed to pick up the tab for the home inspection and appraisal if the buyer walks away. Realtor Vanessa Bergmark told Inman that sellers planning to travel may want to give someone the power of attorney to close on the deal in case they get stuck and can’t return.
The Coronavirus Threat to Real Estate
An unexpected travel delay is just one way that the virus could impact a real estate transaction. There are reports that some buyers are backing out of deals because they are worried about how the coronavirus will affect them. Virus fears already created what Inman called “economic anxiety” and triggered a massive sell-off on the stock market. (3)
Concerns affecting buyers and sellers include a pull-back on international travel. That will decrease the number of foreign buyers in the U.S. market. People looking to buy a second home are also worried that a travel slowdown might impact their ability to rent the home when they are not using it. The virus could also lead to labor shortages in the construction industry if workers become sick.
Top U.S. Destinations for 2019
Turning to more positive news, there’s a new report that shows where people were moving to last year, and Jacksonville was one of the top four choices. The HireAHelper report says, the number of people moving in to Jacksonville was 55% higher than the number of people moving away. (4) It was fourth on the list but I mention Jacksonville first because it’s also a great market for real estate investors.
Looking at the full list of cities, Scottsdale, Arizona, came in first with more than double the number of people moving there than those moving out. Durham, North Carolina, was second followed by Sarasota, Florida. As you know, population growth is one of the necessary components for a good real estate market. Job growth is also very important.
The number of single homeowners is rising. Census Bureau data shows a new record high of 38.4% in 2018. That’s the most recent data available. If you pare that data down to homeowners between the ages of 18 and 34, 48.5% of them are single.
USA Today says the strong job market is contributing to the increase because people feel more confident about their ability to handle a mortgage without a spouse. Chief economist for Haus, Ralph McLaughlin, says that many people are also postponing marriage but still want to reap the benefits of homeownership. He repeated a mantra that most real estate experts agree with — “owning a home is a better deal than renting.”
(1) MarketWatch: Home Price Growth
(3) Coronavirus and Real Estate: Inman