April Home Sales Fall as Policymakers Lock Down Economy to Control Pandemic
MADISON, Wis. – The dramatic slowing of the economy to reduce the spread of the COVID-19 virus decreased home sales in April even as prices continued to rise, according to the most recent review of the existing home market by the Wisconsin REALTORS® Association (WRA). Existing home sales fell 6.9% in April, compared to April 2019 whereas the significant tightening of inventories drove the median price up 9.7% over the past 12 months to $214,000. Year-to-date home sales remained in positive territory after a good start to the year, rising 2.9% through the first four months of 2020 relative to that same period in 2019. Median prices continued to rise on a year-to-date basis, increasing 8.3% to $200,000.
“Since the time from an accepted contract to a closing can be four to eight weeks, it’s only now that we’re seeing the effect of the coronavirus on monthly sales,” said WRA Chairman Steve Beers. Closings that took place in the second half of April could have been under contract in mid-March, around the time the national emergency was declared. Beers added, “It’s going to get a lot worse over the next few months, which unfortunately is our peak sales period.”
Nearly all closings from this point forward are based on signed contracts after the initial Safer at Home order by Gov. Evers went into effect. “We’re in for a rough road for housing given that summer is the peak sales season in Wisconsin,” Beers said. In a typical year, approximately 43% of total annual home sales in Wisconsin occur in the May-through-August period, so the economic slowdown could not come at a worse time.
“Our inventory problems got much worse over the last month, and that is continuing to drive home prices up,” said WRA President & CEO Michael Theo. On every measure tracked by the WRA, inventories have fallen significantly. New listings in April dropped 38.2%, which caused total listings to fall 20.5%. This pushed Wisconsin’s housing supply to just 3.7 months in April, down from 4.7 months 12 months earlier. “With such limited homes for sale, it’s not surprising that home prices are rising so quickly,” said Theo. “What is surprising, however, is that housing affordability is unchanged over the last year, thanks mainly to historically low mortgage rates,” he said. The Wisconsin Housing Affordability index shows the fraction of the median-priced home that a buyer with median family income can afford to buy, assuming a 20% down payment and the remainder financed with a 30-year fixed-rate mortgage at current rates. The index stood at 204 in April, unchanged from April 2019. The 30-year fixed-rate mortgage fell to 3.31% in April, which reflects its lowest level since 1971. “Even though home prices rose nearly 10% this year, mortgage rates fell at twice that pace, which is a great situation for creditworthy buyers,” said Theo.
“The prospect of a V-shaped recovery is diminishing given how quickly unemployment has spiked,” said David Clark, Marquette University economist and consultant to the WRA. Although the Wisconsin unemployment rate for April has not yet been released, it is expected to increase dramatically from its March level of 3.4%. According to the Wisconsin Department of Workforce Development, the regular weekly claims for unemployment insurance for the week of May 3 to May 9 increased more than tenfold from 24,838 during that week in 2019 to 312,797 in 2020. “Even as much of the state economy begins to open up now that the Stay at Home order has been struck down by the Wisconsin Supreme Court, it will be a gradual process,” said Clark. He noted that many of the state’s most populous counties such as Milwaukee, Dane and Brown counties remain locked down. “Economists are now suggesting more of a Nike swoosh-shaped recovery with social distancing protocols preventing a more rapid bounce in economic activity once we bottom out,” said Clark.
Theo indicated that although sales levels will be lower the next few months, there are still buyers taking advantage of these historically low rates. “REALTORS® are following all CDC guidelines and taking all necessary precautions to ensure the safety of buyers and sellers,” said Theo. “There continue to be great opportunities even during the pandemic, and a REALTOR® who is experienced can guide you safely through the process,” he said.
Note that the WRA employs a slightly different protocol to determine inventory levels than the protocol used by the REALTORS® Association of South Central Wisconsin (RASCW). For consistency, the summary tables for the South Central region reported in the WRA release employ the WRA approach. However, a modified table employing the RASCW methodology is available from the WRA upon request.