In 1959, a new television show premiered on CBS called The Twilight Zone. The title of the first episode was “Where is Everybody?” After the famous opening, the narrator begins “The place is here, the time is now, and the journey into the shadows that we are about to watch, could be our journey.” This introduction could have easily been written for 2020.
An Inverted Real Estate Market
In last month’s article, you saw this graphic. It shows the point in time in late May that the number of homes for sale dipped below the number of homes in sale pending status waiting to close. Buyers during the months of June, July and August have all experienced frustration over the lack of homes to purchase as Covid-19 measures forced many to work from home.
Realtors continue to describe this as a very long, extended spring market with multiple offer scenarios that do nothing more than exasperate eager homebuyers.
At the time I identified this inverted market status, it looked as though it may come to an end by the first week of September as Pending Sales were slowing down and Homes for Sale counts were beginning to climb. However, as we move into the latter part of summer, it appears that Pending Sales are not slowing down at the pace projected and homeowners in the lower price points have begun to put their homes up for sale again—feeding a starving lower price point market. At this pace, we could remain in this inverted market well into October.
What Is Feeding This Activity If There Aren’t Enough Homes To Sell?
In a time where a global pandemic is amongst us, one would think the economy would shut down as people would be afraid to venture out. Job employment would logically be at high risk as consumers fail to consume and producers fail to produce. What is actually happening is people are adapting. Many, if not most, are able to work from home or remotely.
Countless services continue to not only survive, but thrive in the environment. Economic stimulus actions such as government backed unemployment payments and stimulus checks all play a temporary role in keeping the economy afloat. But the one factor making the largest difference has been historically low mortgage interest rates.
This has given homebuyers and homeowners the ability to afford to buy a home, refinance an existing home and remodel and expand a current home. The old saying “cheaper than rent” is the mantra. The biggest hold back is home seller fears in the mid and upper ranges knowing their home will sell quickly and they could have a difficult time finding a home to move to.
That is where new construction has been able to take advantage this year. Builders can effectively turn on and off supply as dictated by buyer demand whereas existing home sellers do not have that luxury. As a result of the lower mortgage interest rates, buyers can afford to spend more on the next home and also jump into the traditionally higher priced range of new construction.
2020 is going to go down in history as a year unlike any other. As a result of pandemic fears, public schools restarting this fall are in a state of controversy. Colleges and Universities are also adapting to online, mixed and in person classes. Some college sport leagues have cancelled fall activities while others are moving ahead limiting fan attendance.
Throw in a land hurricane that blows across the entire state with virtually no warning leaving hundreds of thousands with property damages and thousands without electricity for several days. On top of everything else, it is a presidential election year. Real estate has a tendency to be affected around national elections every four years.
Ending On A Positive Note
The Des Moines real estate market is very strong. Even with For Sale inventory down by 33% from a year ago, Pending transactions are up 49% over the same time last year. Year-to-Date Closed transactions are up over 8% from 2019 which will translate to an all-time record of the number of homes sold in a year in Central Iowa.
Record low home mortgage interest rates are allowing buyers pay more for their home purchases pushing the median sale price across the board to $237,000, up over 5% from this time last year. Welcome to the Twilight Zone!