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U.S. Real Estate Market Overview: National Housing Trends and Insights

As the U.S. economy attempts to claw its way back from a debilitating recession, the housing sector is running laps. In the third quarter, typically a cooldown period for the market, home sales flourished unbound from the spring’s lockdown measures as remote work, urban flight, and potential cost savings spurred more purchases.

While the health crisis rages on, safety fears among sellers and rising material costs for builders have exacerbated an ongoing listings shortage. Meanwhile, sub-3% mortgage rates and the strong allure of roomy suburban homes are fueling an insatiable appetite for a severely depleted housing stock, causing property values to reach new heights.

Looking at the remainder of the year and ahead to 2021, the market shows no signs of cooling. Forbearance plans have prevented foreclosures from creating a supply glut, while modest improvements in the jobs market will help homeowners get back on track with their mortgages independently. An astounding shortage of available homes may be the only shackle inhibiting further gains in sales. And in that case, it’s time to build more houses.

New home sales eclipse 1 million mark

In August, sales of newly constructed single-family homes skyrocketed to an annualized sales rate of 1,011,000, marking a seismic 43.2% leap over the year prior, according to data from the Census Bureau.

Not only did August’s new home sales numbers reach levels not seen since 2006, but the data is also indicative of the real estate market’s V-shaped recovery since the coronavirus hit. (To help you visualize it: new home sales nosedived to an annual sales rate of only 570,000 in April.) Doug Duncan, chief economist at Fannie Mae, provides perspective for these numbers:

“While we believe the COVID-19-related delay in the spring homebuying season is likely continuing to shift purchases to later in the year, recent sales have more than made up for the spring slowdown. We believe low mortgage rates, limited availability of existing homes available for sale, and what appears to be increased homebuyer interest in suburban areas in some metros are fueling demand for new home construction,” Duncan said in a statement.

Data from HomeLight’s Top Agent Insights report for Q2 2020 confirms that in the wake of the coronavirus, real estate agents cite the need for more space (44%) and moving to the suburbs (37%) as top reasons motivating people to move. Our Q3 poll of over 1,000 agents further supports that 55% have seen remote work encourage moves away from the office.

...But inadequate supply will be a blocker

As buyers continue to snatch up new construction at record speed, the pool of available homes with shiny appliances and never-been-used plumbing is shrinking fast. The Census Bureau’s estimate of new houses for sale at the end of August was 282,000, down from 291,000 in July.

Considering 6 months of inventory constitutes a balanced market, the supply of new homes remains extremely tight at 3.3 months of supply compared to a supply of 5.5 months the year prior.

A report from Crain’s New York sheds light on what’s holding builders back, namely, the rising cost of lumber made worse by the California wildfires — and a scarcity of labor. These factors give builders an incentive to slow down the pace of construction and keep home prices high to cover their margins.

Sinking mortgage rates put pressure on lender capacity

Remember when anything under 5% felt like a great interest rate on your mortgage? By comparison, the under-3% rates recorded since July make the cost of borrowing money sound almost as good as free. For the week ending September 25, demand for mortgage application volume was 22% higher than the same week in 2019.

As of October 1, the 30-year fixed averaged 2.88%, a slight decrease from the week prior. Buyers love a bargain, and if they can’t score a good price on a house right now, mortgage rates will be their silver lining. In the meantime, between purchase demand and refinancing requests, lenders have a lot on their plate. Their limited capacity could prove to be another ceiling on housing market potential.

Climbing prices reignite affordability concerns

The current supply and demand dynamic in real estate is a recipe for rising property values. Among the existing housing stock, which sits at a low 3.0 months of supply similar to new construction, prices rose 11.4% year-over-year in August to a median national sales price of $310,600, according to the National Association of Realtors’ monthly existing-home sales report. That’s great news for homeowners who will enjoy hefty equity gains as a result of the pandemic home-buying rush.

However, the leap in prices will also start to price out buyers, especially first-timers, and create a massive affordability hurdle for many aspiring homeowners. To balance the scales, more housing is needed. In our Q3 2020 research, nearly one-third of the 1,000+ real estate agents surveyed said that access to affordable housing will be the most pressing legislative issue to address in 2021.

Unemployment improves, but worries remain

In August, unemployment dropped to 7.9% from 8.4% with an increase of 661,000 nonfarm payrolls. The job market improvements indicate the economic recovery is trending in the right direction, but there’s still a long way to go before the 22 million jobs lost due to the coronavirus are fully recovered and unemployment gets back to tight pre-pandemic levels of 3.5%. In addition, job growth has slowed from July when employers added 1.4 million nonfarm payrolls.

Consumer Confidence remains at “dumpster” levels, coming in at 74.1 for August 2020 (compare that to a recent high of 101.0 in February), according to the University of Michigan Consumer Sentiment Index. But for now, the housing market won’t be tamed by consumer pessimism. The one comfort Americans can still turn to is their home.

What’s in store for housing?

In a typical year, the third quarter marks a cooldown period for housing as summer wraps, school begins, and peak moving season comes to a close. In 2020? Not so much. The fall is still absorbing pent-up demand from the spring and then some, resulting in an abnormally busy time for real estate. Between low mortgage rates and a new pandemic lifestyle everyone’s adjusting to, homes have become a highly popular pandemic purchase. Until builders or existing owners unlock some supply, expect these competitive conditions to persist.