Despite the best efforts of state, local and federal governments, there will surely be people who are suffering financial hardship and have had to put their dreams of homeownership on hold. I wish them well as they dig themselves out of this terrible situation.
For those who are surviving Covid-19, however, and don’t get sick from it in the coming months, the continued record-low interest rates are making home purchase more attractive and more affordable.
As you’ve no doubt heard, the Federal Reserve has plunged hard into softening the impact of the virus and its attendant effects on the economy by reducing the Fed Funds interest rate used by banks to near zero. While this rate is unrelated to mortgage rates, we are also seeing those rates staying below 4% and approaching 3%, which is propping up the real estate market in a big way.
People who can afford to buy a home and have the income to qualify for a mortgage are getting off the fence. This is evident from how many homes are going under contract quickly, often with competitive bidding.
In the first 10 days of May, there were 2,306 homes within 25 miles of the State Capitol entered on Denver’s MLS. 615 of them were under contract by May 10th. Another 171 homes were entered as “Coming Soon” as of this Tuesday.
While that’s less than the first 10 days of May 2019, when 3,348 homes were entered on the MLS and 795 of them went under contract by May 10, it’s still an impressive amount of activity, and is probably due in part to the excellent mortgage situation.
Another factor that will stimulate purchasing among the wealthy is that the stock market has recovered more than half of its early losses due to the virus. That makes it more likely that investors would be willing to liquidate stocks to finance a cash purchase of real estate.
In April 2019, about 48% of homes sold at or above their asking price, and 46% of them sold in a week or less. This year’s performance is better. Of the homes that closed during April 2020, about 58% sold at or above their asking price, and about 62% sold in a week or less. Those statistics tell me that we have a pretty active sellers market, which stands in contrast to the gloomy economic situation caused by Covid-19.
It’s hard to believe that the real estate market will tank later this year if it is not tanking already.
I’m seeing that dynamic myself. As of this writing, all my own listings are either under contract or closed, including the Wheat Ridge home featured as “coming soon” a couple weeks ago. That $550,000 brick ranch was only listed as “active” on the MLS last Tuesday, and showings didn’t begin until Saturday, but our first offer came in on Sunday, and it was under contract at better than full price by Tuesday morning.
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