Why Dr. Yun Says Now Is a Good Time to Buy
The coronavirus has upended our daily lives and brought economic turmoil — but Dr. Lawrence Yun, Chief Economist and Senior Vice President of Research of the National Association of REALTORS®, is optimistic about the future.
In a webinar for Mainstreet members earlier this month, Yun laid out the reasons to expect a rebound in the Chicagoland housing market, and why potential homebuyers who are on the fence about making a move should act soon.
A summer spending rise is possible
While the coronavirus and resulting lockdown led to many lost jobs and lost wages, the economic stimulus packages put into place actually caused personal incomes to rise, on average, in April. Due to the combination of fewer opportunities to go out and spend and concern about longer-term economic impacts, many people also saved a much higher percentage of their money in April than they otherwise would.
Additionally, the reopening of the economy is bringing furloughed workers back to work. For example, during the height of the lockdown, many healthcare workers who were not directly working with COVID-19 patients were furloughed or let go, as elective procedures and regular checkups were delayed. However, many of these visits, from joint replacements to dental exams, will begin again in the summer. While this effect is not seen evenly across all industries, it does mean we’ll begin seeing a rise in spending power in the near future.
Moreover, data on unemployment claims indicates that these numbers, while extremely high, are beginning to stabilize. The week of May 30 showed the lowest number of new unemployment applicants since the initial spike in unemployment in mid-March. The total number of Illinoisans receiving unemployment relief actually declined slightly toward the end of May.
Mortgage applications continue to increase
The number of mortgage applications fell precipitously in March, and hit a low point in late April. However, they’ve been rising steadily since the beginning of May, and have now passed where they were in early March. Clearly, many buyers are still set on finding a home this year.
The summer market in Northern Illinois will be shaped by both this rise in mortgage applications and the continued low inventory in all but the luxury market. Homebuilding declined during the pandemic, and was already low before that. More homes will come on the market now that the lockdown is easing, but it will not be enough to keep up with demand.
Now is the time to lock in a mortgage rate
Today, mortgage rates are at an all-time low, and the Federal Reserve has said they will not raise rates through 2022.
To offset the effects of the pandemic, the US government has essentially been printing money in the form of stimulus checks and forgivable business loans. Dr. Yun does not expect significant short-term inflation due to these payments given that the US dollar remains strong and trusted around the world. However, depending on the additional government assistance needed to get the country through the rest of the coronavirus pandemic, inflation could be a real concern in a few years.
If that inflation comes to pass, the cost of living will rise across the board, including rent and housing costs. Since mortgage payments will be locked in, people who have steady employment and the means to purchase a home now would do better to buy and have their money in an appreciating asset.
For REALTORS®️, the worst quarter is likely past
In Q1, which had almost ended by the time Illinois went into lockdown, home sales across the country actually rose 5 percent over the first quarter of last year. In Q2, they dropped 28 percent, a sobering picture of the economic impact of the virus.
However, NAR’s predictions for the rest of the year show expected improvement. In Q3, Dr. Yun predicts that sales will be only 13 percent below last year’s Q3 numbers, and in Q4, sales are projected to be only 6 percent below the same time last year.
While it’s possible that the market will rebound more quickly, there’s a good chance that most REALTORS®️ will do less business this year than last year, even with this steady improvement. If you have concerns about your income for the year, please look into your eligibility for benefits under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). NAR ensured that REALTORS®️ would be eligible for the temporary “Pandemic Unemployment Assistance” (PUA) program. More information is available on their Pandemic Unemployment Assistance FAQ page.
Permanent shifts as a result of the pandemic will lead to changes in buyer behavior
As we look ahead to the hopeful development of a coronavirus vaccine and coming out of the grips of the pandemic, there are sure to be lasting changes to what homebuyers seek.
While many companies are eager to get employees back in the office, others are finding that remote working and virtual meetings are preferable than their old ways of working. Meanwhile, many families find themselves dreaming of a larger yard, or a spare room to convert to a home office or even a hobby space.
These trends will likely cause a move away from city centers to the suburbs, where homebuyers can find more space and less congestion when they do go out in public. For Mainstreet members, this will likely mean a flood of Chicagoans ready to make the leap to smaller towns all around Northern Illinois. This may also mean that a lot of young people look to skip a starter purchase of a condo or townhouse and instead go straight to a detached single-family home.
Mainstreet members, we’d love to hear how these economic predictions track with what you’re seeing in your own work, and how your brokerage is preparing for the rest of the year. You can tell us more on Facebook and Twitter.