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Has the U.S. Housing Market Become Recession-Proof?

Last Updated September 23, 2020 2:24 PM
Harsh Chauhan
Last Updated September 23, 2020 2:24 PM
  • The U.S. housing market has enjoyed stable price growth this year.
  • Consumer interest in new homes remains high.
  • Low supply and increasing buyer interest are making the market recession-proof.

The U.S. housing market has held its ground impressively this year despite the economic fallout of the pandemic that has gripped the globe and sent millions into unemployment. Buyers were fleeing the market and sales were crashing earlier this year, but prices have kept on increasing as interest in homeownership remains healthy and supply remains low.

Chart showing home price growth
The U.S. housing market has enjoyed stable price growth in 2020. | Source: Redfin 

According to Redfin data, the median price of a U.S. home stood at $295,263 in December 2019. In June 2020, the median price increased by 5.4% to $311,254.

The growth came at a time of high unemployment, indicating that the housing market has become resilient amid the doom and gloom surrounding the economy.

What’s Working for the U.S. Housing Market?

The unemployment rate stood at 11.1% in June , which is one of the highest readings in the past seven decades. The unemployment rate peaked at 14.7% in April at the height of the economic turmoil triggered by the pandemic.

The housing market has barely flinched thanks to a combination of low interest rates, tight inventories, and rebounds in the labor market that have kept sentiment and prices high. The number of homes for sale in the U.S. stood at 1,161,285 units in June 2020 , which was a massive drop of 31.3% from the prior-year period.

chart showing home supply in the U.S.
Inventory available for sale has dropped substantially this year. | Source: Redfin 

There’s just two months of housing supply available on the market. In other words, it takes only two months for a home to be sold, which is far below the average supply of four to five months .

A low supply metric indicates few sellers and more buyers in the market, which is proving to be a catalyst for price. This scenario could continue as demand for housing remains elevated.

The Lure of Purchasing a Home Is Still There

In July, Fannie Mae’s Home Purchase Sentiment Index dropped 2.3 points to 74.2. The report pointed out that the number of respondents believing that now is an excellent time to buy a house was down to 53% from the earlier reading of 61% . Thirty-eight percent of Americans think now is a bad time to buy a home compared to 27% earlier.

But these concerns haven’t dampened Americans’ enthusiasm to explore a home. CNBC reports that there was a 950% increase in searches for  “process of buying a house” while people also searched for “minimum credit score to buy a house.”

These are positive signs for the housing market as buyers still seem interested in putting down the money on a new property.

Video: What’s behind the rise in home sales?

The Fannie Mae survey found out that the percentage of respondents anticipating an increase in home prices in the next year increased to 35% in July from 34% earlier. The percentage of respondents expecting a drop in home prices fell to 23% from 25% earlier.

All these signs indicate that the economic fallout of the pandemic may not impact the housing market negatively. It has held its ground due to several factors that have made it recession-proof at a time when the broader economy is on the ropes .