New Home Sales Reach 2006 Level

New homes sales, which are captured when the contract is signed, came in at a one-million (seasonally adjusted and annualized) rate in August, up 4.8% from last month and up a surprising 43% from one year ago. [The last time new home sales hit the million mark was in November of 2006, near the height of the housing bubble.] The strength in sales last month came primarily from the South, the largest housing market. Inventory available for sale sits at a 3.3 months’ supply, the lowest rate in history. There are currently half the number of homes on the market needed to meet demand.

Existing home sales, a lagged measure of housing market activity, came in at six million for August, also the highest in 14 years. Sales were up 2.4% during the month as tight inventory pushed prices to all-time highs; the median price was $310,600. Inventory is currently at a 3 months’ supply, about half of what is needed for the market to clear and half of what supply was back in 2006 when sales reached the same pace.

Mortgage applications rose during the third week of September as applications for purchase and refinance both increased. Applications to buy homes softened after hitting a peak in early July but have resumed that climb. Refinance applications were running above last year’s levels but appear to have eased in early August.

Mortgage forbearance, as offered by the CARES Act, fell to 6.93%, which is about 3.5 million households. Not all mortgage holders in forbearance are unable to pay their mortgages; some took out the forbearance as a form of insurance; options to refinance or take out home equity lines of credit dried up at the start of the recession. Concerns are mounting over the ability to pay mortgages for the rest of the year as fiscal support in enhanced unemployment insurance has dried up. Lower income and minority homeowners are the hardest hit, with Black and Hispanic mortgage holders less likely to have information about forbearance plans available to them. A warning sign is the number of mortgages in forbearance rising for Ginnie Mae loans, which involve lower income households. About 30% of mortgages are not covered by the CARES Act.

Sentiment, as tracked by the Fannie Mae National Housing Survey, increased in August after flailing in July. More than half of all buyers have felt optimistic since April. Sellers were laggards in their optimism about overall housing market conditions but crossed an important threshold in August with more sellers believing it is a good time to sell a house. This could prompt more sellers to list and alleviate the shortage in inventories for both new and existing homes. Until recently, sellers had been less inclined to sell their homes during the pandemic, with many resorting to renovations or even buying second homes to escape to while virus uncertainty lingers.

Bottom Line
The housing market remains a silver lining in an otherwise clouded outlook for the economy. It may be one of the strongest components of growth if we do not get more aid from Congress in the fourth quarter. That is good but not good enough to get us out of the hole we are still in due to COVID.

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