U.S. Real Estate Market Overview:
National Housing Trends and Insights
As the U.S. muddles through economic limbo, the housing sector is proving to be a bright spot. This comes as good news after fears of infection and restricted movement crushed home sales and new construction earlier this year. Headed into the second half of 2020, record-low mortgage rates are fueling demand, and builders have expressed renewed confidence. With lockdown measures lifted, house hunters are out in force — armed with masks, gloves, and hand sanitizer.
Looking ahead, it appears the main headwind for housing will be a lack of supply. Inventory was already low coming into the pandemic — then, some markets saw new listings drop upward of 80% this spring, further draining the pool of unsold homes. No matter how active buyers become, the market will likely hit a ceiling until builders are in a position to sustainably add new housing stock to the mix.
New home sales rally after spring lull
After tumbling in March and April, sales of newly constructed single-family homes rebounded 16.6% in May to an annualized sales rate of 676,000 homes, according to data from the Census Bureau.
Doug Duncan, chief economist at Fannie Mae, provides perspective for these numbers: “With inventories of existing homes for sale remaining tight (likely due in part to home sellers’ COVID-19 concerns), new home sales have played a more prominent role in fulfilling demand, especially as buyers take advantage of continued low mortgage rates”, Duncan said in a statement.
Housing starts, permits make solid gains
Authorized building permits rose 14.4% to an annual rate of 1,220,000 in May. Housing starts were measured at 934,000, a 4.3% increase over April. In another sign of confidence, the National Association of Home Builders / Wells Fargo Housing Market Index reported that builder sentiment jumped 21 points in June, the largest spike on record for the index.
On a YoY basis, though, construction is still lagging, and the impacts of the pandemic linger. Housing starts and permits are down 23.3% and 8.8%, respectively, from May 2019 due to setbacks earlier in the year. Meanwhile, because houses take time to build, housing completions also declined 7.3% from April to May 2020, and were 9.3% below what they were in May 2019.
Lack of supply could hold back sales
Despite the increase in new home sales, it’s unclear whether builders can sustainably keep up with demand to support the current pace of sales moving forward. And so far, demand is whittling away at available new construction. The Census Bureau’s estimate of new houses for sale at the end of May was 318,000, down from 325,000 in April and representing a 6.6% YoY decline. Inventory of new homes sits at a 5.6 months of supply at the current pace of sales, compared to the 6.7 months supply recorded in April.
Mortgage rates hit another record low
Diminishing inflation has sunk mortgage rates to a new record low. As of June 18, the 30-year fixed averaged a rock-bottom 3.13%, according to data from Freddie Mac’s Primary Mortgage Market Survey. Homebuyers are eager to take advantage of a good deal: Freddie Mac also reports that purchase demand activity is 20% above what it was a year ago, reaching its highest level since January 2009.
Will low supply push prices up too fast?
According to HomeLight’s Top Agent Insights Survey for Q2 2020, about 20% of real estate agents across the country expressed concern that home prices were on the decline in April. However, our most recent data collection shows that prices were never in grave danger for most of the country. As of June 10, 99% of agents in our research reported that prices were holding steady or on the rise where they do business.
Data from the National Association of Realtors (NAR) supports our findings. NAR’s existing-home sales report indicates that the median-existing home price in the U.S. rose 2.3% YoY in May. Worries over price pressure have now shifted in the opposite direction, the trade association says. As supply constricts, analysts are keeping an eye on whether first-time buyers will be outpriced if home values shoot up too quickly.
Surprise job gains give markets hope
After a devastating April when the U.S. lost 20.5 million nonfarm payroll jobs and unemployment skyrocketed 4.4% to 14.7%, analysts were wringing their hands in anticipation that Maycould be worse.
In a surprise turn of events, unemployment fell slightly in May to 13.3% with the addition of 2.5 million jobs. While the numbers offer a glimmer of hope, it’s far too soon to claim we’re out of the woods, considering more than 1.5 million Americans filed for unemployment at the beginning of June.
Concerns over the long-term economic effects of the pandemic still loom, including what will happen in the coming months to mortgage holders in forbearance.
What’s in store for housing?
Despite turbulence in the stock market and the precarious position of the economy, housing remains a beacon of strength and resilience for the U.S. In fact, in the summer and early fall, we are likely to see a competitive homebuying season drive up prices, while builders play a constant game of catch up.
While risks of coronavirus infection will continue to cause hesitancy especially as cases surge in certain areas, adaptations in the real estate industry including digital closings, cleaning procedures, and virtual tours will help keep the nation mobile and support movement in the market.