U.S. home sales increased by the most on record in June, boosted by historically low mortgage rates, but the outlook for the housing market is being clouded by low inventory and high unemployment amid the COVID-19 pandemic.
The report from the National Association of Realtors on Wednesday, which also showed house prices rising to an all-time high last month, confirmed a shift toward bigger homes and properties away from urban centers as companies allow employees flexibility to work from home because of the coronavirus.
The upbeat housing market news was overshadowed by a relentless surge in new COVID-19 infections, which has prompted some authorities in the hard hit South and West regions to either shut down businesses again or pause reopenings, threatening the economy’s recovery from the COVID-19 slump.
“While fundamentals will support some activity, the slow recovery in the economy and labor market will limit the growth in home sales,” said Nancy Vanden Houten, lead U.S. economist at Oxford Economics in New York. “The leveling off in the recovery as new Covid-19 cases surge lends a further downside risk, particularly since hard-hit regions account for the largest shares of home sales.”
Existing home sales jumped 20.7 per cent to a seasonally adjusted annual rate of 4.72 million units last month. The percentage gain was the largest since 1968 when the NAR started tracking the series. Sales plunged to a 3.91 million unit pace in May, the lowest level since October 2010.
June’s increase ended three straight months of decreases, though home resales remained 18 per cent below their pre-pandemic level. Economists polled by Reuters had forecast sales rebounding 24.5 per cent to a rate of 4.78 million units in June.
Existing home sales, which make up about 85 per cent of U.S. home sales, fell 11.3 per cent on a year-on-year basis in June.
The 30-year fixed mortgage rate is at an average of 2.98 per cent, the lowest since 1971, according to data from mortgage finance agency Freddie Mac. Data last week showed homebuilding increased in June by the most in nearly four years.
A separate report on Wednesday from the Mortgage Bankers Association showed applications for loans to purchase a home increased 2 per cent last week from a week earlier. The economy slipped into recession in February. A staggering 32 million Americans are collecting unemployment checks.
Stocks on Wall Street were trading higher amid optimism about another round of fiscal stimulus for the economy. The PHLX housing index rose, outperforming the broader stock market. The dollar fell against a basket of currencies. U.S. Treasury prices rose.
SPACE FOR HOME OFFICES
Home sales rose surged in all four regions last month. Demand for housing was skewed toward single-family homes, mostly in the suburbs and smaller towns, with people seeking large spaces for home offices and schooling.
Economists believe the migration to suburbs from city centers could become permanent even if a vaccine is developed for the respiratory illness. A homebuilder survey last week showed strong demand for single-family homes in lower density markets, including small metro areas, rural markets and large metro suburbs.
Single-family home sales advanced 19.9 per cent in June. While multi-family home sales shot up 29.4 per cent, they accounted for only 9 per cent of sales, down from the 12 per cent that is considered the norm for the housing market.
There were 1.57 million previously owned homes on the market in June, down 18.2 per cent from a year ago. The median existing house price increased 3.5 per cent from a year ago to a record $295,300 in June. The NAR attributed the modest percentage gain to sales being concentrated in the more affordable markets in the South.
At June’s sales pace, it would take 4.0 months to exhaust the current inventory, down from 4.3 months a year ago. A six-to-seven-month supply is viewed as a healthy balance between supply and demand.
Last month, houses for sale typically stayed on the market for 24 days, down from 26 days in May, and 27 days in June 2019. Sixty-two percent of homes sold in June were on the market for less than a month. Tight supply was causing bidding wars in competitive markets.
First-time buyers accounted for 35 per cent of sales in June, up from 34 per cent in May 2020 and matching the share during the same period in 2019. Individual investors or second-home buyers, who account for many cash sales, bought 9 per cent of homes in June, down from 14 per cent in May.
“The resilience of home prices, particularly given the rise in mortgages delinquency rates and increased use of forbearance, has likely pulled many investors to the sidelines,” said Mark Vitner, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.
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