Despite widespread uncertainty in the wake of the worst economic shock in generations, Americans still want to buy houses, one of the biggest financial decisions they will make in their lives.
Consider: Residential construction rose 17 percent in June, according to data from Census Bureau, while permit applications for single-family home construction rose nearly 12 percent. And mortgage applications rose 19 percent in the week ending July 17, over a year ago.
Part of the power of housing comes down to demographics, as millennials, who make up the majority of the population, enter the market to buy homes. And while double-digit unemployment would normally dampen demand, the current downturn has shifted sharply to certain lower-wage sectors, such as the hospitality and hospitality industry, where workers are more likely to rent.
“It appears that much of the buying activity comes from new home buyers,” said Fratantoni of the MBA. “It seems as if you are in a sector of the economy that can work remotely or not.” The first buyers accounted for 35 percent of existing home purchases in June.
Mortgage applications data indicate that recent homebuyers, who traditionally have a higher average income than the larger population, are financially safe: the average loan size for purchase applications in the first week of July was $ 357,000.
Historically low mortgage interest rates – average interest rates fell for the first time since Freddie Mac fell below 3 percent in 1971 last week – have also knocked potential homeowners off the fence. And the increased time people spend at home amid widespread lockdowns has led many people to reevaluate their living space.
“It’s not 2008. People then prioritized their automatic payments because you can drive your car to work,” said Isaac Boltansky, director of policy research at Compass Point. Now: “You are forced to stay in your house. For me, I think the importance of home, both conceptually and practically, has grown because of those who stay at home. Home is more important now than four months ago. ‘
This has led to a greater demand for new homes with more space for working remotely and distance learning. While the resale market is still lagging, new home sales increased 16.6 percent from the previous month in May and 12.7 percent from May 2019.
In any case, the pandemic seems to accelerate the transition of the white-collar thirty-somethings from cramped apartments in busy urban centers to more isolated single-family homes in the suburbs.
“The shift from the urban core to the suburbs was already underway, but now appears to be on steroids,” Zelman said. “We underestimate how consumers would respond to the pandemic,” she added, as social distance and distance work have led people to want more space.
Nearly a quarter of respondents to a National Association of Realtors survey among its members in late June said they had buyers who had moved the location where they wanted to buy a home because of the pandemic. Of those, 47 percent said their buyers wanted to buy a suburban home, and 39 percent said buyers wanted to move to a rural area. Others indicated that buyers have moved to a small-town home.
Meanwhile, house prices continue to rise as demand continues to outpace the country’s already pressured housing supply.
Still, the dramatic rise in demand when states began reopening in May and June and just emerging in housing data can be short-lived.
‘The big question is, is this bounce just a temporary pent-up question, “said Fratantoni. “We don’t know to what extent that pent-up demand will diminish here.”
It may even be that the market has already peaked, given the virus’s flare-up across the country.
At the same time, analysts fear that the isolation of the housing sector from other parts of the economy during this recession will make it less likely to kick-start the recovery as in the past, as housing market performance is currently unrelated to the plight of unemployed.
“It will not be enough to lead us out of this recession alone; I think the recession in some industries will be too severe, ”Zelman said. “Unless we get a vaccination, the homes will start to feel the repercussion the longer it lasts.”