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Real Estate Is Seeing a V-Shaped Economic Rebound So Far

The market quickly hit bottom during stay-at-home orders but then bounced back with renewed vigor. Long-term strength, however, likely depends on unemployment trends.

NEW YORK – A number of Americans decided to upgrade their homes during the COVID-19 pandemic, new-home sales posted a surprise gain last month and home builders’ stocks have surged in recent weeks, fueling optimism around the housing market.

While contracts to buy existing homes plunged 22% in April to a record low, applications for new-home purchase loans have shown gains for the past six weeks and are now back to early-March levels. An S&P index of home builders has nearly doubled since crashing on March 23 and is now down less than 2% for the year.

It looks as if the real estate market is back, and the April crash during COVID-19 shutdown orders was merely a speedbump in an otherwise strong sellers’ market.

Some are skeptical about the recovery, however, noting that the housing market cannot boom with an economy that has already lost 40 million jobs. Homebuyers are already facing challenges as credit tightens, inventory remains low and prices continue to rise.

“Housing has followed a V-shaped recovery, no questions asked – as quickly as it fell, it’s coming back,” says Ali Wolf, chief economist at Meyers Research. “But there are still major risks.”

“It’s going to be difficult to see housing expand strongly until we start to get a better recovery in the job market,” adds David Berson, chief economist at the insurance and financial services company Nationwide.

But the job market is also hard to predict until companies start calling workers back, and even that relies on another variable – the course of a pandemic that is still not fully understood.

Source: Bloomberg (05/29/20) Gopal, Prashant

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