The lowest mortgage rates on record are colliding with the prospect of an economic downturn prompted by the coronavirus outbreak, setting the stage for an unpredictable spring selling season in the housing market.
Early indications suggest that rock-bottom borrowing costs may not be enough to lure many home buyers amid the current uncertainty. Economists are tamping down earlier expectations that cheap rates and a strong job market would boost the housing market in 2020 following years of sluggish growth.
The National Association of Realtors had anticipated about 5.5 million sales of previously owned homes in 2020, up from 5.3 million a year in 2019 and 2018, said NAR chief economist Lawrence Yun.
“I thought that there would be a steady increase from January pretty much throughout most of the year,” Mr. Yun said. “Obviously, we hit a major speed bump” due to the epidemic.
The association said Monday it expected a 10% near-term drop in home sales in the next month, compared with the period before the virus became prominent. In a survey of its members about the coronavirus, the association said 11% of respondents reported lower home-buyer traffic and 7% reported lower home-seller traffic.
The spring months are crucial for home sales, as buyers look to move into new homes before the start of the school year. About 40% of annual sales take place from March through June, according to the NAR.
Some agents say the virus is causing clients to avoid public gatherings, including open houses.
David Kong, an agent at real-estate brokerage Keller Williams NYC, got a call early last Thursday from a client asking to cancel her Saturday open house.
The client, Jodi Freed, a party planner from Queens, N.Y., said she was concerned about having strangers in the home where she and her family still live, because her teenage children have health conditions.
“It’s pretty much put our life on hold,” she said. “If I can’t sell the house, I can’t move.”
Real-estate brokerage Redfin Corp. said last week that a handful of buyers had suspended their home searches due to the virus, while three sellers in Seattle canceled listings. Redfin has encouraged home shoppers to use video chat to tour homes virtually.
The biggest problem in the housing market is a shortage of homes for sale, “and the coronavirus I think will exacerbate that, because it’s the sellers who are hesitant to put their homes on the market,” said Redfin Chief Executive Glenn Kelman.
The U.S. housing inventory in January was at the lowest level for that month since 1999, according to the NAR. The U.S. had 3.1 months of supply of homes on the market at the end of January, down from 3.8 months a year earlier.
In February, the number of homes for sale fell by more than 20% in half of the nation’s 50 biggest metro areas compared with a year earlier, according to Realtor.com. ( News Corp, parent of The Wall Street Journal, operates Realtor.com)
The average rate on a 30-year fixed-rate mortgage fell to 3.29% last week, the lowest level on record, said mortgage-finance giant Freddie Mac. Mortgages rates are closely linked to yields on the 10-year Treasury, which hit an all-time low Monday.
Low mortgage rates have led to a boom in refinancing, and they typically increase home sales too. A 3.3% rate on a $300,000 loan would create a monthly payment of $1,314, according to LendingTree Inc., an online loan information site. At 4%, the monthly payment would be $1,432. (Both figures exclude taxes and insurance).
King County, Wash., which includes Seattle, has confirmed more than 100 Covid-19 cases, and some schools have closed. But the housing market hasn’t slowed, said Matt van Winkle, chief executive of Re/Max Northwest.
Open houses were busy over the weekend, he said, and weekday showings of houses have increased because buyers who are working from home have more flexible schedules.
“We’re still seeing properties sell in the first day or two when they come on the market,” he said.
Marcum Brooks and Judy Naegeli visited three houses in Seattle on Friday and attended an open house on Saturday. They decided to make an offer on one of the houses this week. Three other couples were at the Saturday open house, Mr. Brooks said, and one couple brought a child. “It didn’t really seem like anybody was too skittish” about getting sick, he said.
The historically low inventory of homes for sale, combined with falling mortgage rates, has helped push home prices higher in recent months. The S&P CoreLogic Case-Shiller National Home Price Index showed last month that the annual pace of home-price growth in major metropolitan areas sped up to 3.8% in December.
A separate home-price index from data provider CoreLogic Inc. showed an annual 4% increase in January.
Sales of previously owned homes fell 1.3% in January from December but rose 9.6% from a year earlier, NAR said last month. Pending home sales, a forward-looking indicator based on contract signings, grew 5.7% in January from a year earlier, according to NAR.
—Will Parker contributed to this article.
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