Housing market bulls braced for a grisly pending home sales reading today, and boy did the data deliver. But this sudden collapse in contract signings may have a silver lining.
Because although it’s true that this gauge of purchase activity just careened to an all-time low, it may have also signaled that the U.S. housing market has already hit rock bottom.
Economists knew that widespread lockdowns would upend real estate transactions. But they still didn’t expect it to be this disruptive.
New statistics from the National Association of Realtors (NAR) reveal that pending home sales dove 21.8% in April , blowing past economist estimates of a 15% contraction.
Add in March’s 16.8% downturn, and April contract signings fell an unbelievable 33.8% from the previous year. That’s the biggest decline since NAR launched the index in 2001.
But just like with the consistently awful labor market data, what matters most to analysts isn’t how ugly the statistics are. It’s what they’re going to look like in the weeks and months ahead.
And according to NAR Chief Economist Lawrence Yun, this is probably the worst they’re going to get.
Pending home sales are a leading indicator of closings, a metric that should endure its worst month in May.
But they’re a lagging indicator of demand, which Yun says has been “surprisingly resilient” in the midst of an unprecedented economic crisis.
Already, home purchase mortgage application volume has recovered back to 2019 levels, while Google searches for “buy a home” have skyrocketed to all-time highs.
Part of this stems from tight housing inventories, but individual consumers are so eager to purchase a home that more than 40% of them were getting into bidding wars at the same time contract signings were cratering.
While coronavirus mitigation efforts have disrupted contract signings, the real estate industry is ‘hot’ in affordable price points with the wide prevalence of bidding wars for the limited inventory.
In the coming months, buying activity will rise as states reopen and more consumers feel comfortable about homebuying in the midst of the social distancing measures.
In fact, Yun is so bullish on the housing market’s ability to snap out of its lockdown funk that he is already upgrading his full-year forecasts.
He now expects the median home price to rise by 4%, although sales will fall by 11%. He previously predicted that sales would fall 15% and home prices would remain static.