Housing’s Check Mark Recovery – October 26, 2020

Economists like to use letters of the alphabet to describe an economic recovery. A sharp rebound would be termed a V-shaped recovery. A U-shaped recovery would better define a more gradual turnaround.

One important sector that has surprised nearly everyone is housing. Housing is in a boom few could have anticipated. It’s not simply a V-shaped bounce. It’s more akin to a check mark, i.e., a sharp downturn followed by a bounce that far exceeds pre-Covid activity.

The graphic below illustrates that both existing home sales (already-owned homes) and new home sales (newly constructed homes) have surged to a 14-year high. We’re back at levels last seen during the 2000 housing boom.

“Seventy one percent of homes sold in September 2020 were on the market for less than a month,” the National Association of Realtors said in a press release last week. “Properties typically remained on the market for 21 days in September – an all-time low.”

The National Association of Homebuilders (NAHB) reported that homebuilder confidence hit an all-time high in October (records began in 1985).

“The strength of housing demand continues to be largely fueled by historically low interest rates and the growing appeal among consumers to live in lower-density markets,” the NAHB said. “New single-family home sales are outpacing housing starts by a historic margin.”

The housing boom may be raising concerns that we’re set to experience a bust as we did a decade ago. Low rates are fueling demand, but there are differences today vs the 2000s.

Lending standards remain tight and homes are in short supply. During the 2000s, it was much easier for someone to obtain a mortgage, and builders were cranking out homes at a fast pace.

Though buyers are grappling with higher prices and limited supply, shortages may ease when mortgage forbearance for out-of-work homeowners ends.

For now, builders are adding permits and are trying to catch up with demand, according to U.S. Census data. Put another way, activity is supporting overall economic growth.

If you have any questions or concerns, feel free to reach out to me. My door is open.

Created 2020-10-26 14:35:31