Home sales outpace projections in June, but coronavirus clouds outlook
Existing-home sales outperformed their potential by 3.8% in June, but if the coronavirus continues to spread the outlook for continued growth is bleak, First American said.
Potential existing-home sales increased to a 4.88 million seasonally adjusted annualized rate last month, a 9.2% month-over-month increase from May's revised rate of 4.47 million. The market outperformed that by an estimated 186,850 SAAR sales.
"The domestic and global economy continue to feel the pain inflicted by the coronavirus pandemic. Yet the housing industry, at least for now, is bucking the trend," Mark Fleming, chief economist at First American, said in a press release.
"While the rebound in the potential for existing-home sales is good news, the recent surge in COVID-19 cases has caused many parts of the country to reverse or pause plans to reopen, posing additional risks to the economy and the housing market," he said.
Compared with June 2019, the potential for existing-home sales was down by 2.3%.
The rising tenure of existing homeowners, who otherwise would have listed their properties for sale, reduced the potential by 354,200 SAAR units compared with June 2019. Tighter credit standards as a result of the pandemic cut another 267,000 sales out of the market while the lack of new home construction, where the shortage affects move-up buyers, took 2,450 sales out of the calculation.
First American's report pointed to three conditions that were offsetting the challenges to home sales.
“Record-low mortgage rates have helped fuel an increase in house-buying power, contributing nearly 305,000 potential home sales. Increasing household formation and rising house prices also contributed positively, with 164,400 and 40,360 respective potential home sale gains," said Fleming.
Fannie Mae's economists used the results of its Home Purchase Sentiment Index survey to explain to its board why it was bullish on home values during the pandemic, Chief Economist Doug Duncan said.
"Attitudes on the demand side did not [change] as much as on the supply side," he said.
The amount of people claiming it was a bad time to sell skyrocketed to 65% in April and declined to 62% in May and dropped to 48% in June. The June number is 7 percentage points higher than the percentage of those saying it was a good time to sell. That had an impact on listings, Duncan noted.
On the other hand, respondents who felt it was a good time to buy bottomed out at 48% in April before rising to 52% in May and 61% in June. Only 27% said it was a bad time to buy in June.
Fannie Mae currently projects existing-home sales to be down 11% on a year-over-year basis in 2020.
The housing market is looking at a W-shaped recovery, not a V-shaped one, due to the lack of supply as well as the renewed spread of COVID-19, according to HouseCanary's latest Market Pulse report.
"This reemerging overhang seems to be impeding the significant recovery that the housing market had been experiencing since mid-April," HouseCanary CEO Jeremy Sicklick said in a press release. "Despite the fact that transaction activity is down sharply on a week-over-week basis, supply remains tight in roughly 40 states as sellers are not expressing a high degree of near-term confidence."
In addition, relief for the shortage from new construction is not likely to happen soon.
New single-family housing authorizations decreased 3.77% month-to-month and 10.02% year-over-year in June, according to BuildFax.
For existing homes, maintenance volume was up slightly at 0.22% year over year, but remodel volume — a subset that includes renovations, additions, and alterations — decreased 0.98%.
"If single-family housing authorizations follow a similar pattern to existing housing activity, which experienced its steepest drop just two months ago, there's a chance new construction could stabilize in the fall," BuildFax Managing Director Jonathan Kanarek said in a report. "However, as is the case with any economy-impacting event, this projection is subject to shifts in policy and societal regulations as the U.S. grapples with lowering its COVID-19 case count."
Fleming said potential home sales are nearing pre-pandemic levels, but risks remain.
"The pandemic has already influenced some long-term trends, like increasing tenure and limited supply, and may soon also influence other key housing market dynamics, such as household income growth and formation," Fleming said.