In June, pending home sales, the country continued to bounce across the country (for the time being)
The numbers: The current house sales index rose by 16.6% in June compared to May, the National Association of Realtors reported Wednesday.
The increase comes after the largest monthly increase was recorded in anticipation of home sales last month, the trading group said.
Compared to a year ago, contract filings rose 6.3%, a sign of how strongly the market has recovered from the coronavirus-related low.
“It is quite surprising and noteworthy that, amid a global pandemic, house buying contract activity is higher than a year ago,” Lawrence Yun, the chief economist for the National Association of Realtors, said in the report. “Consumers are benefiting from record-low mortgage rates as a result of the Federal Reserve’s monetary policy with maximum liquidity.”
The index measures real estate transactions that signed a contract for homes that were previously owned but had not yet completed, benchmarked by contract signing activity in 2001.
What happened: Each region saw a monthly increase in anticipation of home sales, led by the Northeast (up 54.4%). However, the Northeast was the only region not to experience a year-on-year increase in contract signatures, reflecting longer pandemic-related lockdowns in those states.
The department now expects that the sale of existing homes for the whole of 2020 will only decrease by 3%.
The big picture: The continued recovery in anticipation of home sales suggests the real estate market is flourishing, despite the sustained rise in COVID-19 cases across the country.
Two important factors cause a sharp increase in buying activity. Many buyers seem to be entering the market to make up for lost time – as such, the increase in sales reflects the delays caused by the corona virus outbreak.
The low mortgage rate has also created a sense of urgency among Americans who want to buy a home and set an attractive interest rate.
Nevertheless, headwinds remain for the country’s housing market. There is still a shortage of homes for sale, and some sellers remain on the sidelines instead of listing their properties. The supply situation will inherently limit how many deals can be closed.
“The effects of social distance seem to have more of an impact on supply, as new quotations remain well below the 2019 level despite the rebound in demand we saw in May and June,” said Ruben Gonzalez, chief economist at real estate agency Keller Williams.
And while low mortgage rates are popular, the novelty is likely to drop if they stay that low for an extended period of time, experts say. Once Americans get used to rates of less than 3%, they may not act as the same catalyst driving sales volumes as they are now, Realtor.com chief economist Danielle Hale told MarketWatch when the 30-year mortgage fell below 3% on average for the first time earlier in July.
Finally, coronavirus cases have continued to increase throughout much of the country over the summer, including in the Sunbelt states with some of the country’s largest real estate markets. It is not yet entirely clear how this increase in cases can affect consumer confidence and people’s interest in buying a home in those areas. And the rapid adoption of virtual technology for showing homes across the real estate industry should avoid some of the negative effects of the increase in COVID-19 cases, Gonzalez said.
What they say: “The numbers tend to evolve broadly in line with mortgage applications, which have fully recovered from their COVID-induced fall in early spring,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a research paper.
Market response: The Dow Jones Industrial Average DJIA,
and the S&P 500 SPX,
both had risen slightly on Wednesday morning, ahead of an antitrust hearing with tech giants Apple AAPL,
and alphabet BiederL,
The return on 10-year treasury paper TMUBMUSD10Y,
fell as traders waited for a Fed policy update.