The S&P CoreLogic Case-Shiller home price indexes for February to be released tomorrow will show where the housing market was standing before cities locked down to contain the COVID-19 outbreak.
Here are five factors to keep in mind once the report is released:
1. National Home Prices will continue to rise
All three indexes, the National Home Price index, the 20-City Composite index, and the 10-City Composite index will show price gains. A good indication is the FHFA’s House Price Index (HPI) report for February which reports a 0.7% increase in national home prices from January, and a 5.7% year-over-year increase. February and March are typically the strongest months for the housing market, so February will likely show the highest price gains for 2020.
“House prices had positive monthly gains in every census division. Transactions still do not reflect much, if any, influence from the COVID-19 outbreak as of February,” said Dr. Lynn Fisher, Deputy Director of the Division of Research and Statistics at FHFA.
2. Phoenix and Tampa will continue to lead in price gains.
Phoenix, Tampa, and Seattle reported the highest year-over-year gains in January. The trend is likely to continue for Phoenix and Tampa which were also the leaders in price growth in 2019. Seattle, located in the first state to report a COVID-19 case back in January and the first to experience the rapid spread of infection, might take a step down in the list.
3. Low mortgage rates supported prices
Mortgage rates declined to near record lows throughout February. This prompted an increase in mortgage refinance applications but also in new home purchases as it helped offset the high prices.
4. Low supply means strong prices
The low housing supply favored sellers who had a line of buyers trying to take advantage of the low-interest rates while there was still inventory to look at. Inventory of homes declined by 15.3 percent in February year-over-year according to data from Realtor.com
Shelter in place orders were not in effect until March, so in February sellers weren’t pulling their properties off the market due to fears of infection or to comply with social distancing as they started to do so a month later. This means that supply was tight enough to keep prices high but not so limited that all buyers would be dissuaded.
5. What to expect in March
Housing demand is predicted to decline in the next few months. The effect of COVID-19 on home sales will start to be noticeable in March as sellers began removing their homes from the market and cities placed shelter in place orders that prevented business to continue as usual. The impact on home prices, one of the steadiest economic indicators, will take longer.
“It takes a persistent long downturn in home demand and for the inventory of homes to climb a lot higher, before home prices start to fall,” said Stan Shipley, an economist at Evercore ISI.