Incoming reports on the U.S. housing market remain overwhelmingly encouraging. There was what at first glance might have seemed like a scare last week when the National Association of Realtors announced that existing home sales tumbled by 9.7 percent in May. However, it is important to remember that this particular metric reflects closings, i.e. when the keys are handed over, meaning that the May sales figure was generally for contracts signed in April when the entire economy was basically still shut down. The June data should therefore look a lot better since the economy started to reopen in May. In fact, another NAR report released this week revealed that pending home sales surged by 44.3 percent in May, the largest month-over-month gain on record. On a year-over-year basis contract signings are still negative but this is more a reflection of just how severe the economic damage was during the blanket lockdown, and the residential real estate market remains the area of the economy most likely to experience a V-shaped recovery.
New home sales provide another forward-looking indicator and the latest report was similarly positive. Specifically, sales of new single‐family homes in May jumped by 16.6 percent to a seasonally adjusted annual rate of 676,000 units. With supply very low even before the pandemic there is clearly a rush to resume construction on any projects that were put on hold during the lockdown. This is confirmed by the sharp rebounds in framing and lumber prices (see below), as well as the big bounce in homebuilder confidence and reported doubling in prospective buyer traffic. NAR’s chief economist Lawrence Yun added that “This has been a spectacular recovery for contract signings, and goes to show the resiliency of American consumers and their evergreen desire for homeownership … The outlook has significantly improved, as new home sales are expected to be higher this year than last, and annual existing-home sales are now projected to be down by less than 10% – even after missing the spring buying season due to the pandemic lockdown.” A potential headwind, though, is a “second wave” of the coronavirus. Most of the latest uptick in infections has occurred in the Sun Belt, which has been the key driver of real estate market strength in recent years, and how state and local governments respond to a COVID resurgence could determine how much more momentum the recovery gains.
Sources: Econoday, NAR, NAHB, U.S. DoC, Calculated Risk, FRBSL