Existing-Home Sales Soar Despite Record-Low Inventory
Keeping you updated on the market!
For the week of: November 23, 2020
MARKET RECAP
Existing-Home Sales Soar Despite Record-Low Inventory
The numbers: Existing-home sales rose for the fifth consecutive month in October, as the housing market finally made up for the pandemic-related downturn in sales this spring.
Total existing-home sales increased 4.3% from September to a seasonally-adjusted annual rate of 6.85 million, the National Association of Realtors reported Thursday. Compared with a year ago, home sales were up roughly 27%. It was the highest level of home sales in 15 years.
“Considering that we remain in a period of stubbornly high unemployment relative to pre-pandemic levels, the housing sector has performed remarkably well this year,” Lawrence Yun, the trade group’s chief economist, said in the report. “The surge in sales in recent months has now offset the spring market losses.”
Economists polled by MarketWatch had projected existing-home sales to rise to a median rate of 6.5 million.
What happened: Home sales grew in every region across the country, led by an 8.6% increase in the Midwest, the National Association of Realtors reported.
But the supply of homes on the market is a growing concern. By month’s end the total inventory of homes for sale dropped to a 2.5 months’ supply, the lowest on record. A six-month supply of homes is considered to be indicative of a balanced market.
As in September, 7 in 10 homes sold in less than a month. The fast pace of sales drove prices higher, with the median existing-home price was $313,000, up 15.5% from October 2019.
The big picture: A number of recent trends are supportive of growing home sales. Mortgage rates remain at all-time lows — dropping to the lowest level on record for the 13th time this week. Not only do low rates ease affordability constraints caused by the low supply of homes on the market, but they also serve as a catalyst spurring people to enter the market to lock in the cheap financing before it goes away.
Additionally, Americans are busy improving their homes. Both Home Depot and Lowe’s reported increasing sales in the third quarter as Americans spent money renovating their properties. Some of this was undoubtedly caused by people spending more time at home amid the pandemic — and therefore finding more flaws to fix. As economist Christophe notes, “home-improvement activity is closely correlated with existing home sales.” Sellers want to put their best foot forward, and that means doing things like touching up paint or fixing broken fixtures.
What they’re saying: “So far, the housing market appears immune to the virus due to record-low borrowing costs and teleworkers seeking roomier and cheaper properties outside of major cities,” Sal Guatieri, senior economist at BMO Capital Markets, said in a research note.
“While rising prices may be a drag on home sales, mortgage rates are contributing to affordability,” Rubeela Farooqi, chief U.S. economist at High Frequency Economics, wrote in a research note. “While demand for mortgages is likely to stay strong — despite job and income losses — tightening lending standards may be a constraint going forward.”
“With the recent good news on vaccines, it is likely many buyers and sellers are going to reevaluate their preferences as they imagine a world getting back to pre-pandemic conditions in the near future,” said chief economist at Keller Williams.
Market reaction: The Dow Jones Industrial Average and the S&P 500 were both down in Thursday morning trading.
Source: Realtor.com? | Jacob Passy
Looking Ahead: Upcoming Key Market Dates
Tuesday, November 24, 2020Case-Shiller National Home Price IndexTuesday, November 24, 2020Consumer Confidence Index
Homebuilder confidence in November shatters record high, as buyers keep fleeing for the suburbs
In November, builder confidence in the construction market for single-family homes soared to its third record high in as many months.
Overall builder sentiment hit 90 on the monthly National Association of Home Builders’ Wells Fargo Housing Market Index. Anything above 50 is considered positive. Last November, the index stood at 71. At the start of the coronavirus pandemic, in April, builder confidence plummeted to 30. Buyer demand has been incredibly and unexpectedly strong since then.
“Historically low mortgage rates, favorable demographics and an ongoing suburban shift for home buyer preferences have spurred demand and increased new home sales by nearly 17% in 2020 on a year-to-date basis,” said NAHB Chairman Chuck Fowke, a custom homebuilder from Tampa, Florida. “Though builders continue to sign sales contracts at a solid pace, lot and material availability is holding back some building activity. Looking ahead to next year, regulatory policy risk will be a key concern given these supply-side constraints.”
Of the index’s three components, current sales conditions rose 6 points to 96. Sales expectations in the next six months increased 1 point to 89 and buyer traffic rose 3 points to 77.
The NAHB noted that 69% of the responses for the November survey were received before the election for president was called by the media on Nov. 7. The election results, therefore, and their impact on builder sentiment, will be reflected more fully in December’s HMI report.
The nation’s homebuilders have been benefiting from a very low supply of existing homes for sale, as well as a newfound consumer desire to live out in the suburbs. The stay-at-home culture of the pandemic means buyers want not just more space, but specific spaces for working, schooling and exercising at home. They also want more outdoor space. The unexpected surge in demand caught builders off guard early on, and they are now dealing with supply chain issues that are increasing costs.
“Another record high for the HMI reflects that housing is a bright spot for the economy,” said the NAHB’s chief economist, Robert Dietz. “However, affordability remains an ongoing concern, as construction costs continue to rise and interest rates are expected to move higher as more positive news emerges on the coronavirus vaccine front.”
Regionally, on a three-month moving average, homebuilder sentiment in the Northeast increased 2 points to 83. In the Midwest it jumped 6 points to 80. In the South it rose 4 points to 86, and in the West it climbed 4 points to 94.
Source: HousingWire | Alex Roha
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