Existing home sales tumble 17.8% in April

Tim Rood, Former Fannie Mae Executive and SitusAMC Managing Director, joins Yahoo Finance’s Seana Smith to break down April existing home sales data.

Video Transcript

SEANA SMITH: The fallout from the coronavirus pandemic is hitting the housing market hard. We've got a new reading today, US home sales logging their biggest drop in nearly 10 years in the month of April. Joining us now for more on this, we have Tim Rood, a former Fannie Mae executive and also SitusAMC managing director. Tim, it's great to have you back on the show.

TIM ROOD: Thanks, Seana. Thanks for having me.

SEANA SMITH: Well, let's start with the 18% drop that we saw on existing home sales in the month of April. Is this a short-term setback, or could it potentially have longer term implications?

TIM ROOD: That's a great question. I mean, right now, look, I think the housing market has weathered the early rounds of this crisis fairly well. 20% is clearly bad. You were coming into this market with, really, a record pace, though. You think about the number of home sales, new home sales, existing home sales, builder confidence, housing starts, they're all at a blistering pace from the end of February, early March.

Obviously, it all came to a grinding halt in April. Now it really depends on what you're measuring to, to kind of gauge the overall impact of COVID. Naturally, volumes are down, but also inventories are down almost the same percentage. But if you look at things like velocity, so if you look at how quickly the inventory is turning over, it's actually turning over faster than April of 2019.

And you're seeing that's a competitive market in that we're seeing bids above asking price in more markets than you did in 2019. So all is not lost. The endurance of the market will obviously reflect how deep and how wide the recession really is and quickly we come out of it.

SEANA SMITH: Yeah, Tim, I wanted to ask you about that because the bidding wars that are taking place, it's pretty interesting. And there was a recent stat I got from Redfin, and they talked about the fact that more than 41% of homes face a bidding war between April 10th and May 10th. So when we try and just figure out what exactly that means for real estate moving forward, how big of a bump or how big of an uptick do you think we could expect for the price of homes, then, at least in the short term?

TIM ROOD: Well, I mean, it's following really you see that you've got-- it's really kind of neat. You have competing forces, one taking away from the other. So you have headwinds in the housing market, which is really driven by a lack of supply. People are not listing their properties. Rather than dropping the prices, they're just pulling the properties. So supply is shrinking, but demand is still maintaining. They're kind of colliding and pushing prices up.

So I think that as long as demand stays relatively strong and supply stays consistent with that, you're going to continue to see that upward pressure. I think some of the things that are more qualitative that look interesting is that of all of the properties that closed in April, those are usually trends that they basically 80% of them were started after or during the middle of that COVID crisis.

I think they had to be right around the middle of March. We already had the World Health Organization calling it a pandemic. You had deaths up in the US. You had unemployment up. Yet still, those people came off the sidelines and bought.

SEANA SMITH: Yeah, and Tim, [INAUDIBLE] we could be potentially moving past, or I guess, the peak behind us, at least here in the US and a lot of states with coronavirus. What areas of the country do you expect to rebound the quickest?

TIM ROOD: Well, it seems like the highest priced markets are the weakest, along with the urban centers. People are trying to get away from, you know, density, thick areas. They're getting away from what was the trend, urban centers moving to the suburbs, moving to the exurbs. I mean, I love it because, you know, look, we all wrote the epitaph on the suburbs long ago.

And this exodus out of the cities back to the suburbs is also happening at a time where you've got what's been called the silver tsunami. You've got seniors who are flipping over 20 million properties in the suburbs and the exurbs over the next 10 years, which is going to meet this new demand that's coming online.

So if you look at areas that are seeing the hottest pace and the best, most competitive markets, those are like Tacoma, Washington, Seattle, Washington, Denver. But you're seeing some of the other markets, like Miami, Fort Lauderdale, West Palm, those ones are really struggling in terms of turning over that inventory and having to discount those properties.

SEANA SMITH: Yeah, and Tim, real quick, I just want to get your take just on what we're seeing from millennials. Because you and I have talked in the past just that millennials kind of have been on the sidelines. They've been a little bit hesitant to buy their first home. How do you see the coronavirus playing into that dynamic? Has it really gotten a lot of these millennials off the sidelines and looking to purchase their first home?

TIM ROOD: It does appear that way. Look, I mean, that's the hugest demographic tailwind that we've got right now is, of course, the millennials coming of age. The average age for homeowners, the first-time homebuyer is like 33 right now. The biggest cohort of millennials are about 31, 32. So it's lining up nicely.

And as they start families later, they're going to realize and quickly realizing during a quarantine that raising a family in a 700 square foot apartment isn't all it's cracked up to be. And aspirationally, millennials have demonstrated that they have the same aspirations to buy a home as their parents and their grandparents.

You're seeing that definitely pick up. I think it's going to even pick up faster in the next 18, 24 months, assuming that the employment picture doesn't continue at the same pace, and it's not as dire. The government's going to do everything humanly possible to maintain asset prices and to make it attractive to buy a home.

As, you know, most companies or most individuals are homeowners, 80% of their net worth is in that house. And as opposed to renters, they really don't have any net worth to speak of. So the government's going to continue to do and underwrite and subsidize housing any way it can to prop up those values. And I think that creates a good opportunity for millennials as they come of age.

SEANA SMITH: All right, Tim Rood, managing director at SitusAMC, always great to have you on. Thanks so much for joining us again.

TIM ROOD: You bet. Thanks, Seana.