While the rest of the U.S. economy isn’t recovering as fast as we would hope, the housing market is recovering sharply.
According to the National Association of Realtors , existing-home sales surged nearly 21% in June compared with May.
This is the highest monthly gain on record since the Realtors started tracking data in 1968. The increase came after home sales declined sharply over the previous three months due to the pandemic. Despite the big surge, sales were still 11.3% lower annually.
Mortgage rates fell below 3% for the first time earlier this month.
Record-low mortgage rates have fueled homebuying demand. Mortgage applications to buy a home jump 2% last week and were 19% higher than a year ago. That’s the ninth straight week of annual gains.
The housing market is hot, red hot, based on the data and the anecdotal prevalence of multiple offers. The urban area is less hot. We are clearly seeing trends for smaller towns or suburbs.
A record surge in home sales doesn’t mean the housing market has escaped doom. Home sales are based on closings. The latest data represent contracts signed at the end of April and May before much of the national economy began to reopen and before the latest outbreak of virus cases.
Home sales could start to fall if the virus surge prompts a second lockdown. Very few people are willing to buy a house without seeing it in real life.
Prices may not be damaged at all but the sales could. Virtual tours are only making up 7% of buyers.
Another concern for the housing market is rising prices. Home prices are rising due to high homebuying demand and low supply. The supply of available existing homes fell 18.2% annually to just 1.57 million homes for sale at the end of June. The inventory shortage is especially acute at lower price points.
The median price of an existing home sold in June was $295,300, up 3.5% from last year –the highest price on record. Even with low mortgage rates, such high prices make it difficult for low and middle-income workers to buy a house. Tighter lending criteria for mortgages don’t help.
Millennials who want to buy a home might have to delay their project. Many of them have lost their jobs during the pandemic, so they won’t be able to afford a house.
A third of Americans missed their July housing payments and may face eviction. Economics professor Richard Wolff has warned the pandemic could lead to a housing crash worse than the Great Depression.
Freddie Mac has warned that the rise in new virus cases is slowing the economic recovery and that this pause risks turning temporary layoffs into permanent job losses. High and persistent unemployment could hurt home buying.
The housing market is red hot for now, but as home supply keeps shrinking and prices keep rising, home sales should decline. Home prices are likely to fall first in major cities as Americans flee urban areas for the suburbs.