Despite the rise in coronavirus cases in June, there was some good economic news. Sales of existing homes in the US surged by 20.7% compared with the previous month, according to the National Association of Realtors. The surge followed a cliff-dive in April and May, with sales of previously sold homes plummeting by 32% from February.
June's partial recovery to a seasonally adjusted annual rate of 4.7 million homes was an encouraging signal that the deepest valley of the economic collapse may be behind us, though there are still miles to travel. The June number was still down by 11.3% compared with the same period in 2019.
Economists postulate that several factors contributed to the surge. Mortgage interest rates are at historic lows, making home ownership more affordable to many first-time buyers. In light of the pandemic, some families are seeking more spacious accommodations in the less congested suburbs. There has also been an uptick in purchase of second homes. And many families, who hunkered down during the early lockdowns, have ventured back out to take a peek as their job prospects become more predictable.
In light of an excessively low inventory of homes for sale, prices are rising as well. The median selling price of a single family home rose to $295,300 in June, a 3.5% increase over last year. According to the Greater Chattanooga Realtors, median home prices in the Chattanooga area rose 4.7% in the past year to reach $225,000 last month.
The current supply of homes for sale was just four months' worth of inventory. Interestingly, according to NAR, sales of homes in the $250,000 to $500,000 range actually increased slightly over 2019, while both cheaper and more expensive homes declined in sales. And in another positive sign, 35% of all transactions were by first-time home buyers.
Alongside the surge in existing home sales, the sale of new homes also gained steam, rising by 13.8% over May to an annual rate of 776,000, the highest level since the back side of the 2007 crash. The median price of a new home rose to $329,200.
Much of the surge in June housing activity reflected pent up demand from would-be buyers who kept their powder dry during the shutdown but have now gained more confidence in their personal financial prospects.
Yet despite the unabashedly positive numbers, some perspective is warranted. The June existing sales total of 4.7 million units is still far below the all-time peak of the 7.7 million annual clip in June 2005. And new home sales of 776 thousand have barely crawled half way back to the 1.4 million unit summit of July 2005. This despite the fact that 30 year mortgage rates briefly dropped below 3% last week, compared with an average of 5.7% in 2005.
The focus on housing numbers is warranted, since the sector accounts for 15% to 18% of the U.S. economy according to the National Association of Home Builders. This is especially important this year, as forecasters predict that GDP gross domestic product) contracted by over 30% in the second quarter just ended, and the housing market has contributed disproportionately to the recovery. In a measure of perceived optimism, the U.S. Home Construction ETF (ITB) is up 13% year to date, and applications for new mortgage loans are hovering near record highs and include robust refinancing activity, freeing up additional scratch for consumers to forward to Mr. Amazon.
There are clouds on the horizon, with the recent spike in virus cases in the south and west, the planned reopening of schools across the country, and the scheduled expiration of many emergency benefits on July 31. But presumably, a new $1 trillion aid package is on the way (what's another trillion to the deficit, anyway?), progress is steady on a vaccine, and the Fed has an unlimited checkbook (since they print the checks). Fingers crossed.
Christopher A. Hopkins, CFA, is a vice president and portfolio manager for Barnett & Co. in Chattanooga.