While the coronavirus has wrought havoc on the country and globe in a number of ways, one area that seems to continue to benefit from the pandemic is the housing market. Robust demand for housing, buoyed by short supply, a move to working from home, and a push to leave urban areas is driving prices higher faster, but forecasters warn that that trend may abate soon.
Nationally, home prices gained 4.9% annually in June, a much more substantial gain than the 4.1% annual rise in May, according to CoreLogic, one of the key housing appraisal companies. Aided by record-low mortgage rates, housing prices advanced 1% month to month, the swiftest monthly rally for the first month of summer since 2013.
“Mortgage rates hit record lows this spring, which enhanced affordability for homebuyers,” said Frank Nothaft, chief economist at CoreLogic. “First-time buyers, and millennials, in particular, have jumped at the opportunity to achieve homeownership.”
Of course, some markets are doing better than others, with a boost in prices on the East Coast, and a drop in prices in San Francisco, as tech workers headed out of the city, given the opportunity to work from home.
Overall, demand remains high and supply is limited however, something that is especially apparent in Southern California, where prices in San Diego were strong.
While supply remains tight and mortgage rates are projected to remain low, prognostications for home prices are less bullish. If the pandemic escalates or results in another complete economic shutdown, home sales could drop as they did in March and April, and prices would follow. By next June, CoreLogic economists predict prices will be 1% lower than they were this year, especially in entertainment-driven areas like Las Vegas. This could be bearish for housing ETFs and home builders as well.
“As we move forward, we expect these price increases to moderate over the next 12 months. Given the economic outlook, housing remains a bright spot for the foreseeable future,” said Frank Martell, President and CEO of CoreLogic.
Of course, a coronavirus vaccine or positive developments toward creating one could be extremely bullish for both stocks and real estate, supporting a widespread recovery and continued demand for housing, and a boost for mortgage ETFs.
“The pent-up demand from homebuyers returning to the market continues to support a recovery from the weekly declines observed earlier this spring,” said Joel Kan, an MBA economist. “However, there are still many households affected by widespread job losses and the current economic downturn. High unemployment and low housing supply may restrain a more meaningful rebound in purchase applications in the coming months.”
For investors looking for mortgage ETFs, the iShares Mortgage Real Estate ETF (NYSEArca: REM) and VanEck Vectors Mortgage REIT Income ETF (NYSEArca: MORT) are both climbing Wednesday and a good place to start.
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