US Housing Market

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.

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.