New home sales, which are recorded at the contract signing rather than the closing, came in at a seasonally adjusted annual rate of 901,000 in July, the highest level since December 2006 when the housing boom was tapering off. The monthly jump was supported by strong sales in all regions except the Northeast, which is the smallest housing market in the country. Builders have been busy catching up after months lost to lockdowns; sales during July came in at a 36% annual growth.
Existing home sales, which are recorded at the closing, jumped almost 25% in July, the biggest monthly growth on record, to show a V-shaped recovery. Double-digit growth was broad-based, especially in the West and the Northeast, where monthly sales surged more than 30%.
Tight supply contributed to the median existing home price rising above $300,000 for the first time since tracking began; prices were up 8.5% from a year ago. Inventory for existing homes sits at 3.1 months’ supply, half of what is usually needed for the market to clear. Supply for new homes was a bit better at four months’ supply. Builders say they are elated by the amount of foot traffic from prospective buyers, but they still face significant hurdles from rising lumber prices that translate into higher home prices.
Mortgage applications to purchase a home are 27% above year-ago levels, buoyed by historically low mortgage rates. The volume of purchase applications hit a cycle high in early July, which will help sales for the next few months. Our concern is for the fourth quarter: If the volume of applications falls precipitously, that will translate into lower home sales next year. Credit conditions have tightened, leaving out some potential buyers. Historically, Black and Hispanic borrowers have had lower credit scores than their Asian and White counterparts so any tightening is bound to hurt these groups the most.
The Home Purchase Sentiment, as tracked by Fannie Mae, showed a divergence between buyer and seller sentiment in July. Buyer sentiment dropped as seller sentiment continued to swing upward. Young renters and households earning less than $100,000 were the most pessimistic about buying. That is a caution sign because these demographics would be next in line to become homeowners.
Housing market growth will continue during the next few months, running on pent-up demand and low mortgage rates. Wealthy buyers and those who live in major cities like New York and San Francisco have been moving to suburban areas; some are even buying second homes to use as a work-from-home space. This is not urban flight; other urban cores are still experiencing strong buyer activity.
The high-frequency data shows that the recovery is not yet derailed, but it has been losing momentum. Risks are mounting as unemployment insurance claims climbed back up over one million during the second week of August as virus cases spread across the Sunbelt and the West. A surge in virus clusters due to schools reopening is not helping. Economists surveyed by the National Association for Business Economics (NABE) believe a double-dip recession is possible. A resilient housing market cannot keep the economy out of the woods, especially if many are left behind.
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