There are several important reports on the U.S. housing market worth mentioning this morning. First, privately-owned housing starts in April grew at a seasonally adjusted annual rate of 0.891 million units, according to new Census Bureau data. That was a 30.2 percent plunge from March and the worst reading since 2015. The sharp decline was not surprising because the shelter-in-place orders and other efforts to stem the spread of the coronavirus were in full effect last month. As for building permits, this measure of future construction activity also declined in April but comparatively much less than the headline starts figure and the decrease was smaller than analysts anticipated. This supports our argument a month ago that the residential, particularly non-rental, housing market would likely be one of the areas of the economy to rebound the fastest after the COVID-19 crisis fades. In fact, higher frequency real estate data released this week for the month of May have been especially encouraging.
Homebuilder sentiment, for instance, rose by more than expected this month, according to the NAHB, as survey respondents’ views of prospective buyer traffic improved markedly. Optimism jumped in every region except the northeast, and NAHB chief economist Robert Dietz suggested that “Low interest rates are helping to sustain demand. As many states and localities across the nation lift stay-at-home orders and more furloughed workers return to their jobs, we expect this demand will strengthen.” Building materials availability and other supply-side issues, though, could limit home construction, which is another reason why the existing home market should outperform as we exit this crisis. Moreover, mortgage purchase applications for such homes have now increased for five weeks in row and are down just 1.5 percent on a year-over-year basis. Pending home sales have also bounced and in some areas of the country are actually up relative to pre-pandemic levels. A new Redfin report similarly suggests that we have already seen a V-shaped recovery in home buying demand, and that prices are holding up well or even rising as supply simply cannot keep pace. The report’s authors added that “The shift towards remote work will likely increase the number of buyers looking to relocate from expensive metropolitan hubs to cities with a lower cost of living. … People were thinking about relocating or talking about relocating before the pandemic, but COVID was the straw that broke the camel’s back.”
Sources: Econoday, U.S. DoC, NAHB, MBA, Redfin, FRBSL