Why Home Values Are Rising Even As Home Sales Sink

Low home sales activity doesn't correlate with future home values. Home values are based on supply and demand.

May 04, 2020 by Dan Green

The Housing Headline

Home prices are rising even as home sales activity plunges nationwide.

The News Behind The Housing Headline

According to the National Association of REALTORS®, the number of MLS-listed homes going into contract fell 21 percent in March as compared to the month prior, before COVID-19 lockdowns spread across the country.

Last month’s drop represents the largest one-month drop in homes going to contract since 10 years ago.

The data comes from the real estate trade group’s Pending Home Sales Index report, which counts new sales agreements made between home buyers and sellers nationwide. 80 percent of sales agreements convert into closings within sixty days, and the majority of the rest convert within the following two months.

This month’s Pending Home Sales Index suggests that fewer homes will be sold in 2020 as compared to any year since 2011.

Why This Housing News Matters To You

Coronavirus is limiting this year’s home sales. Nationally, sales volume is expected to fall 20 percent on the year, returning sales activity to the lowest levels since the Great Recession.

However, “low sales activity” doesn’t correlate with future home values. Home values are based on supply and demand.

There are three reasons why homes sales activity might drop in a given market. They each lead to a different housing market outcome.

  • Not enough home buyers make home prices fall
  • Not enough home sellers make home prices rise
  • A reduction in buyers and sellers keeps home prices in balance

Since late-February, there have been fewer home buyers out shopping for homes, and also fewer home sellers putting their properties on the market.

The market has stayed in balance.

The National Association of REALTORS® reports a sixteen percent annual decline in homes under contract because there’s less activity. March’s slowing sales doesn’t suggest that the market is collapsing, and anyone who suggests otherwise is being dishonest.

The national home supply remains at 3.4 months, and inventory sits at 30,000 homes for sale on average per state. Don’t expect to wait this market out to “get a deal” somewhere.

Home prices are still rising nationwide.

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