Delayed buying season pushes home sales to record levels
Tuesday, July 28, 2020
Pent-up demand from months of home confinement combined with record-low mortgage interest rates created a surge in home buying in June. Sales of new and existing homes reached some of their highest levels ever and were up in every region of the country.
Industry experts differ, though, on whether this is a sign of the market’s recovery or just a temporary boost before activity tapers off again.
Following three months of declining sales, purchases of existing homes in June rebounded at a record month-over-month pace, jumping 20.7% compared to May. Sales of single-family homes rose just a tad below 20% and those of condos nearly 30%. Although sales overall are still down 11.3% from those of June 2018, the rapid comeback in buyer activity helped to confirm speculation that demand for homeownership remains high and that sales would be even more robust if market conditions were to improve.
Aided by a shortage of existing homes for sale and renewed buyer interest in larger single-family homes, new homes sales, which bounced back by almost 17% in May, continued their upward trend, climbing 13.8% over the previous month, reaching their highest level since the Great Recession, according to the National Association of Home Builders (NAHB).
The Mortgage Bankers Association (MBA) reported new home mortgage applications were up 20% for the month and a whopping 54.1% compared to a year ago. Based on application data, the MBA estimated a 15% increase in the sale of new single-family homes in June.
Renewed construction activity and favorable weather also gave builders a lift in June. New home starts rose for the second month in a row, up 17.3% for the month, with new single-family starts up 17.2%. In addition, new permit requests increased 2.1% (up 11.8% for single-family homes) and new home completions 4.3% (up 9.6% for single-family homes).
While record-low interest rates, currently below 3% in some instances, are helping to fuel buyer activity, they are also pushing prices higher as more buyers compete for the limited number of available homes for sale.
Online real estate brokerage Redfin said the median price of a home in the 85 metro areas it tracks increased 4% in June compared to May, at $299,400. The National Association of Realtors (NAR) stated the median price of an existing home sold in June was 3.5% higher than the previous year, at $295,300. The median price of a new home went from $317,900 to $329,000 in a month, while the average size of a new home loan went from $332,793 to $338,589.
Rising prices are good news for current homeowners but can quickly become an impediment for those looking to buy, especially for first-time buyers, who made up 35% of purchasers in June. Increases in materials costs and a shortage of lumber for home building are threatening to drive up the cost new construction, says the NAHB, which could eventually mean higher prices at a time when builders have been struggling to keep prices competitive.
In recent weeks renewed outbreaks have driven the number of cases of the coronavirus to new highs in some areas, leading to the closure of some businesses again and more economic and employment uncertainty. What further relief the federal government may provide is unclear at the moment.
These conditions may dampen home buying activity in the short term, as may the inability of schools to reopen. As June’s activity demonstrated, those with means are eager to buy, but the pool of eligible buyers may shrink as we move into the latter part of the year.
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