Monthly activity remains well below pre-pandemic levels as fears about job security and health keep many potential buyers sidelined
By Nicole Friedman | Wall Street Journal | June 22, 2020
A sluggish U.S. housing market is staging a recovery amid the pandemic, shaking off high unemployment and a rising number of infections as buyers with pent-up demand seize on record-low mortgage rates.
Sales of previously owned homes rose 20.7% in June over the prior month to a seasonally adjusted annual rate of 4.72 million, according to data from the National Association of Realtors released Wednesday, the biggest monthly increase on record going back to 1968. The surge in existing-home sales follows other recent bullish indicators such as rising new-home sales, robust home-builder activity and a flood of mortgage applications.
Driving sales are apartment renters seeking more space, young families moving to the suburbs, and wealthy city dwellers looking for second homes, brokers and economists say. At the same time, the supply of houses for sale remains low, with the pandemic making potential sellers cautious about letting people tour their homes.
“The housing market is hot, red hot,” said Lawrence Yun, chief economist for NAR, an industry trade group. “As we are coming out of the lockdown, we see this backlog of buyers…trying to take advantage of the record-low mortgage rates.”
Even with the jump in home sales, monthly activity remains well below levels that were seen before the spring lockdowns. June sales marked an 11.3% decrease from a year earlier. Many potential buyers remain on the sidelines, concerned about job security or the health risks related to visiting homes.
Sales of previously owned homes, which make up the vast majority of U.S. housing stock, were particularly strong last month in the West and South. Mr. Yun said activity was higher in small towns and suburbs than in urban centers. Compared with a year earlier, sales increased for homes between $250,000 and $500,000, while declining for lower-priced and higher-priced homes.
Rising home sales could boost the economy, as builders ramp up construction and new homeowners splurge on furniture and renovations. But a resurgence in Covid-19 cases and continued high unemployment could weigh on demand in the coming months. The housing market typically accounts for between 15% and 18% of the U.S. economy, according to the National Association of Home Builders.
The housing market has been a rare bright spot for what’s expected to be an exceptionally weak second quarter for the economy. Gross domestic product is expected to contract at a 35.3% annual rate in the second quarter, according to data firm IHS Markit. That would mark the sharpest quarterly deterioration in records dating back to 1947.
Home sales had been in a two-year rut headed into 2020, weighed down by perennially tight supply and historically high home prices. Even solid U.S. economic growth and low unemployment couldn’t get sales moving.
The housing market showed signs of finally busting out when activity surged at the start of the year. February existing-homes sales hit their highest monthly pace in 13 years. But they hit a wall a few weeks later, after widespread lockdowns kept buyers indoors, prevented real-estate agents from showing homes in some places, and prompted some sellers to pull their houses off the market.
Now, the major question is whether June’s strong sales pace can continue through the summer. In week ended July 14, about one-fourth of American adults missed their latest mortgage or rent payment or had little confidence they can make the next payment on time, according to a Census Bureau survey.
Homes typically go under contract a month or two before the sale closes, so the June data largely reflect purchase decisions made in April or May.
Some agents and brokers are optimistic that the usual spring demand has been pushed to the summer, and that momentum is building. The spring is normally the busiest season for home sales, as buyers with children want to move into new homes before the school year starts.
“We were in a strong housing market before, and we’re going back to it again,” said Jerry Howard, chief executive of the NAHB. “Even in places where the virus is peaking, there is still interest in home buying.”
Some of the hottest markets in May, which would be reflected in the June sales data, were Phoenix, Nashville, Tenn., Jacksonville, Fla., and Austin, Texas, said Danielle Hale, chief economist at Realtor.com. News Corp, parent of The Wall Street Journal, operates Realtor.com.
In the Phoenix area, some homes on the market are getting 20 or more offers, said Kelly Khalil, an agent with Redfin Corp. The number of homes for sale is limited, and buyers are worried about missing out, she said. “I’m starting to feel like by this time next year, we won’t have any houses under $400,000 in our hotter markets,” she said.
Economists warn that growing Covid-19 outbreaks in some parts of the country, including Arizona, Texas and Florida, could slow the market’s gains. Some buyers from New York and California are delaying their trips to Miami to shop for homes due to concerns about the state’s rising case count, said Danny Hertzberg, an agent with Coldwell Banker Realty.
“It felt like we were gaining momentum week after week, month after month, and all of a sudden there’s a little bit of a pause,” Mr. Hertzberg said.
Other housing indicators suggest a more bullish mood is emerging. A measure of U.S. home-builder confidence rose in July to pre-pandemic levels, the NAHB said last week. Housing starts, a measure of U.S. home-building, also rose 17.3% in June from May, the Commerce Department said last week. Pending new-home sales rose to a record in June, Meyers Research said on Wednesday.
For Liz Morrison and David Mahaffey, the attraction of low interest rates outweighed concerns about the pandemic.
The couple started touring homes in May and closed on their first house in Plano, Texas, in June. “It did feel scary. You never know when something’s going to go wrong,” said Ms. Morrison, 27 years old. “But I really was attracted to the low interest rate to save money over time.”
The average rate on a 30-year fixed-rate mortgage fell to 2.98% last week, the lowest level on record, said mortgage-finance giant Freddie Mac. Mortgage applications for home purchases rose 19% from a year earlier in the week ended July 17, the ninth straight week of year-over-year increases, according to the Mortgage Bankers Association’s seasonally adjusted index.
But limited inventory could make it harder to find a home. There were 1.57 million homes for sale at the end of June, up 1.3% from May but down 18.2% from June 2019, NAR said.