U.S. home sales dropped by the most in nearly 4½ years in March as extraordinary measures to control the spread of the novel coronavirus brought buyer traffic to a virtual standstill, with realtors and economists expecting a further deterioration in housing market activity through the second quarter.
The slump in home resales reported by the National Association of Realtors (NAR) on Tuesday added to a pile of dismal March reports in illustrating the economic havoc from the coronavirus outbreak, which has thrown millions out of work.
“The virus could have prevented some transactions from being completed late in the month,” said Daniel Silver, an economist at JPMorgan in New York. “Given a range of indicators showing that activity in the housing market fell as the virus spread intensified, we think the existing home sales data likely will deteriorate further in upcoming reports.”
Existing home sales tumbled 8.5 per cent to a seasonally adjusted annual rate of 5.27 million units last month. The percentage decline was the largest since November 2015. The data reflected contracts signed in February or even January, before measures to curb the spread of the virus paralyzed the economy.
The NAR said it expected a steeper decline in sales in April and in the few months thereafter, derailing the normally busy spring selling season. Sales fell in all four regions last month. Economists polled by Reuters had forecast existing home sales would tumble 8.1 per cent to a rate of 5.30 million units in March. Existing home sales, which make up about 90 per cent of U.S. home sales, rose 0.8 per cent on a year-on-year basis in March.
States and local governments have issued “stay-at-home” or “shelter-in-place” orders affecting more than 90 per cent of Americans to control the spread of COVID-19, the potentially lethal respiratory illness caused by the virus, and abruptly halting economic activity. At least 22 million people have filed for unemployment benefits since March 21.
The housing market was back on the recovery path, thanks to low mortgage rates, before the lockdown measures. It had hit a soft patch starting in the first quarter of 2018 through the second quarter of 2019.
While extraordinary steps by the Federal Reserve to cushion the economy’s free fall, including aggressively cutting interest rates to near zero, will keep mortgage rates low, that is unlikely to boost the housing market because of record unemployment and faltering consumer confidence.
U.S. stocks were trading lower following a historic crash in U.S. crude prices to below zero on Monday and gloomy quarterly forecasts from some companies. The dollar rose slightly against a basket of currencies, while U.S. Treasury prices were mostly trading higher.
Retail sales suffered a record drop in March and output at factories declined by the most since 1946. Homebuilding crumbled in March at a speed not seen in 36 years. Despite the plunge in home sales and homebuilding last month, economists expect the housing market contributed to gross domestic product in the first quarter because of robust gains at the start of the year.
But housing accounts for less than 3 per cent of GDP. Economists believe the economy contracted at its sharpest pace since World War Two in the first quarter. The government will publish its snapshot for first-quarter GDP next Wednesday.
Economists say the economy slipped into recession in March.
The National Bureau of Economic Research, the private research institute regarded as the arbiter of U.S. recessions, does not define a recession as two consecutive quarters of decline in real GDP, as is the rule of thumb in many countries. Instead, it looks for a drop in activity, spread across the economy and lasting more than a few months.
While economists expect home sales to rebound in the second half of the year as the economy reopens, they cautioned the gains would probably not be enough to recoup the coronavirus-related losses. They also said a persistent shortage of homes would constrain sales.
“With unemployment still rising and some social distancing measures likely to remain in place once the economy re-opens, home buyer demand is unlikely to return to pre-Covid-19 levels quickly.” said James Knightley, chief international economist at ING in New York. “Credit availability may further constrain the housing market should rising defaults result in more wariness from lenders.”
There were 1.50 million previously owned homes on the market in March, the lowest on record and down 10.2 per cent from a year ago. The median existing house price increased 8.0 per cent from a year ago to $280,600 in March. The NAR said there was no indication the house price inflation would slow given tight inventory.
But economists expect slow house price growth or even a decline in home values.
“It’s early yet, but it is a recession and in a recession, home prices drop as jobless homeowners who can’t pay their mortgages are forced to sell,” said Chris Rupkey, chief economist at MUFG in New York.
At March’s sales pace, it would take 3.4 months to exhaust the current inventory, down from 3.8 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 29 days, down from 36 days both in February and a year ago. Fifty-two percent of homes sold in March were on the market for less than a month. First-time buyers accounted for 34 per cent of sales last month, up from 32 per cent in February and 33 per cent a year ago.
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