Three Distinct Quarters Tell the Story of a Resilient Housing Market
Differences Between Pandemic and Great Recession
By: Steve Gaenzler, SVP, Data & Analytics, Radian
One year ago, it would have been nearly impossible for prognosticators looking ahead to fathom what was to beset the U.S. in 2020. A worldwide pandemic with terrible human loss, record low unemployment rates flipped to record highs in a matter of weeks, 30-day mortgage delinquency counts shooting to a level higher than the peak of the Great Recession, and equity markets that lost almost half of their value only to roar back to near pre-pandemic levels in less than six months. Like watching a professional tennis match, the ups and downs have been dizzying. And all the while, U.S. residential home prices have appreciated without pause as demand continued to outpace supply.
We have been tracking the U.S. real estate markets using the Radian Home Price Index (HPI). Provided by Radian’s subsidiary Red Bell Real Estate, the Radian HPI measures changes in real estate markets more quickly and with more granularity than any other measure. It has provided evidence of three very distinct housing market quarters.
The first three months of the year were strong for the housing market. Then as the pandemic took hold and lockdowns were implemented nationally, home sales activity was curtailed substantially. From April through June the U.S. recorded much slower home price growth. But the third quarter of 2020 showed evidence of a dramatic recovery and a clear return to the faster price appreciation rates reported at the end of 2019. Amazingly, with all the financial challenges this year, home sales activity will end 2020 as the highest year ever recorded, and home prices will have continued to climb.
This was made possible through the confluence of events new and old. For those dealing with loss of job or income, the mortgage forbearance and eviction moratorium programs that were quickly put in place have kept people in their homes—a critical difference from the last financial crisis. Direct payments to small businesses and consumers distributed aid more quickly and to those in need without an intermediary, also a change from the Great Recession.
But longstanding supply shortages and an increase in demand for low density (i.e., suburban) single family homes were met with historical lows in mortgage rates. In the first three quarters of the year, the Radian HPI has risen at an annualized rate of 7.4 percent, which was higher than the increase of 6.4 percent recorded during the first nine months of 2019. During the third quarter, national home prices increased at an annualized 8.9 percent, which outpaced the 6.8 percent annualized gains during the second quarter, when home price gains were positive, but more subdued.
In fact, construction and supply shortages were made worse all over the country by pandemic related demographic changes. For example, with so many children moving back home with their parents, the supply of newly empty-nester homes typically added to the market has shrunk considerably. Over the past decade, on average the supply of homes on the market in the summer is about 25 percent higher than the winter lows of supply. This year, however, the summer market was only 8 percent higher, meaning more than 165,000 homes that would have typically been for sale, were not.
So, what can we expect for the balance of the year?
The Radian HPI should offer a few clues soon. Unlike legacy indices that offer a picture with considerable time lag, the Radian HPI produces results just 15-days after months-end, making it the most responsive measure of changing patterns. And the Radian HPI is also more granular. Micro-market indices provide a view on markets all the way to the zip code or neighborhood. When overlaid with property attributes such as bedrooms or square footage within a micro market, the Radian HPI provides an even better look at trends that might tell us what is happening on the ground.
