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US housing sales shoot up during lockdown
STUCK day and night in their homes, a surprising number of Americans are deciding the pandemic is a great time to upgrade.
That is how it looks to Lee Whitaker, vice-president of Pacesetter Homes. After the coronavirus shutdown, the small Texas homebuilder braced for the worst. And it came: Business plunged in April. Then in May, something unexpected happened. Sales were 30 per cent above the company's own pre-crisis forecast for the month.
Many owners of existing homes are not selling, which often makes builders like Pacesetter the best source of inventory. Mortgage rates are at record lows. And some house shoppers are saying if they have to be home more, it might as well be a bigger space.
New-home sales, a relatively small piece of the market, posted a surprise gain in April, and stocks of homebuilders have surged in recent weeks. That is fuelling optimism that the housing market, which was set for a hot spring season before freezing up when the virus hit, is bouncing back faster than expected.
"Housing has followed V shaped recovery, no questions asked - as quickly as it fell, it's coming back," said Ali Wolf, chief economist at Meyers Research.
"But there are still major risks."
It is hard to say how long the apparent recovery will last. Signs are mixed. Contracts to buy existing homes plunged 22 per cent in April to a record low. But applications for purchase loans, which have gained for six straight weeks, are now back to early-March levels, according to the Mortgage Bankers Association.
Homebuilding stocks are riding the wave of investor optimism. An S&P index of homebuilders has nearly doubled since cratering on March 23 and is now down just 2.8 per cent for the year.
However, Tendayi Kapfidze, chief economist at LendingTree, is sceptical about the recovery. The housing market cannot boom with an economy that has already lost 40 million jobs, he said.
Job losses have hit lower-paid workers in retail and hospitality particularly hard, but the real estate market may increasingly feel the strain as unemployment moves up the income scale.
Home buyers are already facing challenges. Credit is tightening and bargains are not particularly easy to find. Before the crisis, there was a shortage of affordable homes and that has gotten worse with many sellers deciding to pull back. Bidding wars are erupting in some places where homes are in the shortest supply, including San Francisco and Boston.
Many who apply for mortgages, looking to take advantage of low rates, may not qualify or would not find something they like in their price range, said Matthew Pointon, property economist for Capital Economics. The recovery in sales may be delayed until later this year, he said. BLOOMBERG