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From a minor news item at the beginning of the year, the COVID-19 pandemic spread rapidly across the globe. By March 11, the World Health Organization declared a pandemic, and on March 13 in the US, President Trump announced a national emergency.1 In response, shelter-in-place (SIP) directives were issued across many local jurisdictions and some businesses were ordered to close temporarily, affecting US economic activity and altering the course of the housing market’s direction.
In early March, home sales appeared set to post the largest number of transactions since before the Great Recession of 2007–09. However, SIP orders led to widespread cancellation of open houses, home sellers withdrew or postponed listings, and builders had to adjust to the dual challenges of preparing safety measures at their work sites and delays in obtaining permits and inspections. Given the dire circumstances that led to the dry-up in sales, the turnaround in the market from April’s trough has been remarkable. Both sales and home construction have rebounded. The housing industry is well positioned to be the sector that leads the rest of the macroeconomy into recovery.
Nonetheless, a lackluster macroeconomic recovery could pose significant challenges for housing activity and mortgage performance during the next two years. The next section reviews trends in home sales and rentals, largely relying on weekly data to capture the rapidly changing market. The section after that examines implications for mortgage prepayment and credit risk, including a projection of delinquency rates and distressed sales through 2022.
HOME SALES AND RENTALS
During March, the quickly unfolding health crisis had immediate effects on housing activity. CoreLogic® daily multiple listing service (MLS) activity was aggregated by week and compared with the same week in 2019 to measure the timing and magnitude of the impact. An examination of data by week locates when significant deterioration in activity occurred, as well as when recovery began.
During a typical year, in March new listings pick up in anticipation of the spring home-buying season, and contract signings—also known as pending sales—also accelerate. With the declaration of a global pandemic and domestic national emergency and proliferation of SIP orders, the effect on home sales activity was immediate: Open houses were cancelled, listings withdrawn, and new offerings postponed. The impact showed...