There are a few reports on the U.S. housing market worth mentioning this morning. First, existing home sales fell by 2.5 percent in November to a seasonally adjusted annual rate of 6.69 million units, according to the National Association of Realtors. That was the first decline since May and roughly in line with the pullback analysts expected to result from the recent pandemic flareup and winter weather drag. More importantly, total transactions were still 25.8 percent above the year-ago level, and the median existing home sales price ended November at $310,800, up 14.6 percent from this same period last year and fractionally below the record high. The latter is far from surprising considering that properties typically remained on the market for only 21 days in November as inventory slid to an all-time low. The main headwind for home values therefore remains a sudden uptick in supply (sellers) but various consumer protections implemented in response to the economic disruptions of the coronavirus have helped keep this from being a major issue in 2020. Pandemic-related job losses being concentrated in lower-wage industries, i.e. those with people typically less likely to be homeowners, is another reason why a flood of supply has yet to hit the market.
The expiration of the foreclosure moratoriums and other protections is a potential risk but as long as the vaccine rollout goes smoothly and the economic reopening can resume in early 2021 then it is unlikely we will see anything like what occurred when the housing bubble burst over a decade ago. Home construction therefore remains the more probable source of new supply at the moment and incoming data in this arena has been quite encouraging. For example, privately-owned housing starts in November grew at a seasonally adjusted annual rate of 1.547 million units, according to new Census Bureau data. That was a 1.2 percent increase from the upward-revised October print and much better than analysts anticipated. Both single-family and multi-family starts rose in November, although the rental component was responsible for the bulk of the gain. Looking ahead building authorizations jumped by 6.2 percent last month to the highest total permits reading since 2006. Momentum, though, should moderate in the new year simply due to base effects, and homebuilder confidence has already started to cool. NAHB researchers also cautioned that “Land and material availability and a persistent skilled labor shortage will continue to place upward pressure on construction costs. As the economy improves with the deployment of a COVID-19 vaccine, interest rates will increase in 2021, further challenging housing affordability in the face of strong demand for single-family homes.”
Sources: Econoday, NAR, U.S. DoC, NAHB, FRBSL