New Home Sales Steady in April

New home sales came in slightly higher at 623,000 (seasonally adjusted, annualized rate) in April compared to March; that is 6.2% below the year-ago level. All regions except the West posted gains for the month. The inventory of new homes for sale now sits at a 6.3 months’ supply, the typical amount of time necessary for the market to clear. For comparison, inventory peaked at 12.2 months supply during the housing bust more than 10 years ago. The current inventory will help keep prices from falling or rising too sharply on average - something that is a concern to both buyers and sellers in this pandemic market.

Existing home sales, the largest segment of the housing market but a lagging indicator, came in at a seasonally adjusted annual rate of 4.33 million in April, a drop of 17.8% from March and 17.2% from a year ago. Those moves mark the largest monthly drop since July 2010 and the biggest annual drop since November 2010. Prices continued to climb in April on inadequate supply; inventory was 4.1 months’ supply, less than the market-clearing rate. Distressed sales, a small portion of the market at around 3% of all sales, remained flat in April compared to last year. That is a sign that the mortgage forbearance program offered by the CARES act is helping to stave off a housing crisis.

Fannie Mae’s April survey of home buyer confidence showed an even split on whether this is a good time to buy a house. Most agreed this is not a good time to sell. That underlines the belief that many would-be sellers are not listing their homes, something which would exacerbate the supply crunch when the economy reopens. We expect the shortage of supply to continue since builders scrapped or delayed projects during the lockdown, even though construction was deemed essential.

Bottom Line
Home buyers were active during the COVID-19 lockdown and will remain so as the economy begins to reopen. With incredibly attractive mortgage rates and pent-up demand from first-time buyers, there are reports of bidding wars at several times the previous pace. Realtors report increased interest in virtual tours and self-guided tours of empty houses. Under COVID restrictions, the traditionally busy Spring home-buying season could be pushed out into late Summer or even Fall. Mortgage applications are rising but the mortgage process has become more difficult with tightening credit conditions. This could become a headwind when we are looking for the economy to recover. Persistent unemployment takes a toll over time.

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