The U.S. housing market is showing clear signs of recovery amid the pandemic, despite increasing numbers of COVID-19 cases and high unemployment.
According to recent data from the National Association of Realtors (NAR), previously-owned home sales jumped 20.7% in June compared to May, to a seasonally adjusted annual rate of 4.72 million. This marks the biggest monthly increase recorded since 1968.
As well, prices rose in every major area of the U.S., with the median existing-home price being $295,300, up 3.5% from a year ago. 62% of all properties sold in June were on the market for 24 days, three days less than in June 2019.
The rise in existing-home sales was accompanied by increases in homebuilder activity, new-home sales and mortgage applications.
Factors Driving Home Sales
Pent-up buyer demand combined with record-low mortgage rates appears to be fueling the market recovery. Young families are looking to move to the suburbs, apartment renters are seeking more space and wealthy city folks are hoping to find second homes, according to economists and brokers.
However, the supply of homes for sale is still low, and potential sellers are being cautious about having people tour their properties. This combination of high demand and low supply is leading to a hot housing market.
The West and South regions of the U.S. saw particularly strong previously-owned home sales last month, showcasing 31.9% and 26% boosts. As well, sales activity was higher in suburbs and small towns than in large urban centers, and the $250,000-$500,000 segment recorded increased sales, while transactions for lower-priced and higher-priced properties decreased.
Some of the hottest markets in June were Austin, TX; Phoenix, AZ; Jacksonville, FL and Nashville, TN. Homes for sale in Phoenix, for example, received 20 or more offers, according to information from Redfin.
Despite the rise in transactions, monthly activity is significantly below pre-pandemic lockdowns. June sales saw an 11.3% decline from the previous year, likely due to potential buyers holding off because of concerns about job security or health risks. Still, some buyers feel that the attractive low-interest rates outweigh pandemic-related concerns.
Last week, Freddie Mac reported that the average rate on a 30-year fixed-rate mortgage dropped to 2.98%, the lowest level on record. And according to the Mortgage Bankers Association’s seasonally adjusted index, mortgage applications for home purchases grew by 19% in mid-June compared to the previous year. This marked the ninth consecutive week of year-over-year increases.
Meanwhile, the National Association of Home Builders noted that U.S. homebuilder confidence in July rose to pre-pandemic levels. Additionally, housing starts increased by 17.3% in June compared to May and pending new-home sales surged to a record high.
If inventory remains low, however, interested buyers may have trouble finding a property to purchase. According to NAR, 1.57 million homes were on the market at the end of June, up 1.3% from May, but down 18.2% from last year.
Effect on the Economy
The recent increase in home sales could help boost the economy in many ways, including creating more demand for construction and encouraging homeowners to purchase furniture or pay for renovations.
However, a jump in COVID-19 cases, along with high unemployment, could dampen demand in the near future. According to the National Association of Home Builders, the housing market accounts for 15% to 18% of the country’s economy on average.
Before 2020, U.S. home sales had seen a two-year plateau linked to high prices and low supply, even within a strong economy. But in February of this year, existing-home sales were at their highest monthly pace in 13 years. This was interrupted, however, by the COVID-19 pandemic, which led to widespread lockdowns that prevented real estate showings.
Wondering What Comes Next
Experts are anxious to find out whether the strong sales pace seen in June will continue through the summer. Based on Census data, mid-July saw about one-fourth of adult Americans either miss their latest mortgage or rent payment or express concern about being able to make the next payment on time.
Since homes normally go under contract a couple of months before a sale closes, it’s worth noting that data for June mostly reflects purchase decisions that were made in April or May this year.
All in all, there is some optimism amongst brokers and agents that the typical spring demand will be pushed to the summer months, especially when buyers with children will want to move before the new school year starts.
Much of the continued recovery in the U.S. housing market will be dependent on whether there are new or worsening outbreaks of COVID-19. Still, so far, the industry appears to be bouncing back.
Source: Wall Street Journal