One of the challenges facing the housing industry is
determining what impact the current pandemic may have on home values. Some
buyers are hoping for major price reductions because the health crisis is
straining the economy.
The price of any item, however, is determined by supply and
demand, which is how many items are available in relation to how many consumers want to buy that item.
In residential real estate, the measurement used to decipher
that ratio is called months supply of inventory. A normal market would have 6-7 months of inventory.
Anything over seven months would be considered a buyers’ market, with downward pressure on prices. Anything
under six months would indicate a sellers’ market, which would put upward pressure on prices.
Going into March of this year, the supply stood at three months
– a strong seller’s market. While buyer demand has decreased rather
dramatically during the current health pandemic, the number of homes on the market has also
decreased.
In Madison, we currently have about a three-month supply of homes. This means homes should maintain their
value during the pandemic.
Here's what Freddie Mac is saying:
“The fiscal stimulus provided by the CARES Act will mute the
impact that the economic shock has on house prices. Additionally, forbearance
and foreclosure mitigation programs will limit the fire sale contagion effect
on house prices. We forecast house prices to fall 0.5 percentage points over
the next four quarters. Two forces prevent a collapse in house prices. First,
as we indicated in our earlier research report, U.S. housing markets face a
large supply deficit. Second, population growth and pent up household
formations provide a tailwind to housing demand. Price growth accelerates back
towards a long-run trend of between 2 and 3% per year.”
Even though the economy has been placed on
pause, it appears home prices will remain steady throughout the pandemic.
