US home sales race to 13-year high, but virus disruption looms

Washington

US HOME sales surged to a 13-year high in February, but the housing market recovery is likely to be derailed by the novel coronavirus pandemic, which has unleashed a wave of layoffs and left the economy teetering on the brink of a recession.

The strong report from the National Association of Realtors (NAR) released last Friday reflected contracts signed in January and early February, before the highly contagious virus swept through the country, severely disrupting economic activity.

Economists are expecting a recession by the second quarter, but a growing number believe a downturn is already under way amid dire predictions of job losses at restaurants, bars, hotels and airlines.

The government reported last Thursday that the number of Americans filing claims for unemployment benefits increased by the most since 2012 to a 21/2-year high last week.

Jobless claims could exceed two million next week, economists warned.

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"All of that good news is strictly rear-view mirror now as America shelters in place with sales turnover set to tumble in the new recession starting right now," said Chris Rupkey, chief economist at MUFG in New York.

"This is the fastest recession in history and will suck down every sector of the economy, even the housing sector that had been recovering," he added.

Existing home sales jumped 6.5 per cent to a seasonally-adjusted annual rate of 5.77 million units last month, the highest level since February 2007, the NAR said.

Existing home sales, which make up about 90 per cent of US home sales, accelerated 7.2 per cent on a year-on-year basis in February.

The housing market has regained its footing as mortgage rates have declined after hitting a soft patch beginning in the first quarter of 2018 through the second quarter of 2019.

Government data this week showed single-family homebuilding, which accounts for the largest share of the housing market, increased in February to the highest level since June 2007.

Completions of single-family housing last month were the highest since December 2007, and the inventory of homes under construction rose to levels last seen in December 2006.

These positive developments have been eclipsed by the novel coronavirus. State and local governments are enforcing social distancing policies aimed at containing the virus, which could significantly hamper the usually-busy spring selling season.

The NAR noted that the novel coronavirus had "undoubtedly slowed buyer traffic", but expressed hope that the aggressive stimulus measures adopted by the Federal Reserve and being pursued by the US government would support the housing market.

"We expect buyer traffic came to a virtual standstill starting last weekend," said Conrad DeQuadros, senior economic advisor at Brean Capital in New York. "In any case, it is likely extremely difficult to close on a sale at this point."

The NAR said it was difficult to predict the short-term effects of Covid-19 on future sales. Economists, however, anticipated a sharp decline in sales and possibly home prices, citing previous recessions.

"Since mortgage agreements effectively constrain many homeowners from selling properties at a loss, sellers must delay any planned sale until the economy recovers," said Kwame Donaldson, a senior economist at Moody's Analytics in Pennsylvania. "This all translates into a steep decline in existing home sales during recessions."

Home sales last month rose 0.8 per cent in the Midwest and jumped 7.2 per cent in the populous South. They vaulted 18.9 per cent in the West, which is the most expensive region, but fell 4.1 per cent in the Northeast.

There were 1.47 million previously-owned homes on the market in February, down 9.8 per cent from a year ago. The median existing house price increased 8 per cent from a year ago to US$270,100 in February.

At February's sales pace, it would take 3.1 months to exhaust the current inventory, unchanged from January and down from 3.6 months a year ago. REUTERS