Housing appears to be on the road to a V-shaped recovery, following the April pandemic shutdowns.
New home sales hit an almost 13-year high in June when 776,000 new single-family houses were sold, according to the Census Bureau. That marked the largest amount since July 2007 on a seasonally adjusted basis.
The pace of sales, buoyed by record-low interest rates, is a bright spot in a economy that is still struggling to bounce back during the coronavirus pandemic.
“New home sales picked up for the second straight month in June, in line with various other housing market indicators showing strong demand following the pandemic-induced low in April,” said Joel Kan, the associate vice president of economic and industry forecasting at the Mortgage Bankers Association. “Record-low mortgage rates and pent-up demand from the spring continue to be main drivers for the housing market this summer.”
Sustainability ‘hinges on supply ramping up’
The average rate for the 30-year fixed mortgage hit 3.01% this week, according to Freddie Mac, a government sponsored enterprise, up slightly from the record low 2.98% reached last week. These ultra low rates are enticing homeowners to pull the trigger on buying.
An earlier report by MBA showed that mortgage applications increased by more than 20% in June compared with May. On a year-over-year basis, applications were up by 54.1%.
Kan said an increase in home construction also will help boost buyer optimism, since a lack of homes for sale has been an ongoing headwind for buyers, especially first-time ones.
“We do anticipate that new home construction will speed up to attempt to better meet demand,” Kan said in an earlier press release. “However, with the low level of homes for sale on the market, the sustainability of the upward trend in home purchase activity will hinge on supply ramping up more rapidly.”
Nearly 2.5 million additional housing units need to make up this shortage with 29 states suffering from a housing deficit, according to Freddie Mac.
The upcoming weeks will be the true indicator if the housing market has made a come back.
“The accelerated spread of the coronavirus across the country and expiration of key relief programs are two factors that will put the housing market’s resilience to the test and could threaten the recent improvement in home sales,” said Matthew Speakman, economist at Zillow.com, a real estate listing site. “While the strong numbers today are a good indicator for the market at the moment, the coming weeks will be key.”