It had to end sometime, but that doesn’t make what the U.S. housing market accomplished as the country emerged from its “medically induced coma” any less extraordinary.
Home purchase activity fell off a cliff in March and April, thrusting the real estate sector into freefall. But then, all of a sudden, the freefall stopped.
And almost no one but the most optimistic analysts could have predicted what happened next.
For nine consecutive weeks, mortgage applications for home purchases surpassed their volume from the week before. This so-called “Purchase Index” is a reliable gauge of homebuyer demand. And it’s a leading indicator of where home sales are headed in future months.
That stunning display of consumer resiliency culminated in a feat that it’s safe to say virtually nobody saw coming.
For the week ending June 12, the Purchase Index didn’t just exceed its reading from the previous week.
It didn’t just return to pre-pandemic levels.
And it didn’t just record its best mark of 2020, as unfathomable as that triumph would have seemed three months ago.
No, purchase application volume exploded to its highest level in over 11 years, priming the housing market for a recovery that only the most unflappable contrarians can describe as anything but V-shaped.
And then, one week later, that delirious winning streak came to an end.
According to Mortgage Bankers Association (MBA) data released today, applications for home purchases fell from their 11-years highs last week.
Volume dipped 3%, although it was still 18% higher than during the same week in 2019. Refinance applications fell too, causing overall application activity to drop 8.7% on a seasonally adjusted basis.
What this hiccup in purchase activity may suggest is that pent-up demand that accumulated during the lockdown has been fully unleashed – or at least nearly so.
If that’s the case, then future data should be more representative of the housing market’s underlying fundamentals at the present moment.
MBA economist Joel Kan has another theory.
It’s that pent-up demand is still being released into the market, but that demand is struggling to overcome a pesky hurdle: tight inventories.
One factor that may potentially crimp growth in the months ahead is that the release of pent-up demand from earlier this spring is clashing with the tight supply of new and existing homes on the market.
Additional housing inventory is needed to give buyers more options and to keep home prices from rising too fast.
That tension made itself apparent in Tuesday’s new home sales report. The data crushed expectations, but the largest jump came in houses where construction hasn’t begun yet.
New home construction – especially in lower price tiers – never recovered following the housing market crisis more than a decade ago.
Then the pandemic hit, and the lockdown – coupled with economic uncertainty – caused homebuilding activity to slow. Housing starts fell 18% annually in May, while building permits slid about 10%.
The upshot is that first-time homebuyers – especially from the millennial generation – could find themselves unable to make the life-altering leap into homeownership.
As Bloomberg Opinion columnist Noah Smith wrote this morning, that’s a depressing outcome:
A large fraction of millennials are thus on track to be a sad and lost generation, too old for the young rebellious independent bohemian life, but too poor and indebted to move to the suburbs and start families.
Yet as he remarked elsewhere, it’s not just a problem for millennials. The fallout from leaving younger Americans “without a stake in the U.S. economic system” could have dire consequences.
This is a threat that the housing market – and really U.S. society at large – must grapple with. At least over the long-term.
But right now, what matters most to the economy is that housing blazes a trail that the remaining sectors can follow.
And while its incredible nine-week winning streak may have come to an end, it’s still tough to come to any other conclusion than this: boy, has it ever.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com.