Pending Home Sales Continue to Boom During Coronavirus

Written by Ashley Sutphin Posted On Tuesday, 04 August 2020 05:00

Economic news is not very rosy in most sectors right now, and that’s not a problem exclusive to the United States or any one part of it. The world is grappling with the economic effects of the coronavirus, and the shutdowns that occurred as a result. Some places in the U.S. and globally are even rolling back their reopenings as cases go up.

Despite this, there is one area that seems to be consistently showing signs of strength in the economy—the housing market.

June Pending Home Sales

According to a recent report from the National Association of Realtors released at the end of July, the index of pending home sales went up 16.6% in June compared to May. That follows the largest monthly rise ever for pending home sales in June.

Contract signings are up 6.3% compared to a year ago.

Lawrence Yun, the chief economist for the National Association of Realtors’, said in response to the report that he believes consumers are taking advantage of the mortgage rates, which are at record lows because of the Fed’s monetary policy.

He said he finds it surprising even so, as we’re still in a global pandemic.

The average rate on a 30-year fixed mortgage at the start of June was around 3.24%, and by the end of the month, it had gone down to 2.95%. Since that time, rates have stayed around 2.9%, and they’re expected to stay either at 3% or below for the next 18 months.

There is the potential that the allure of low interest rates could wear off because Americans will largely get used to them being below 3%.

Inventory

One of the biggest challenges for the real estate market, according to the NAR is the limited supply of existing homes. That dropped 18% in June. There were only 1.57 million existing homes available, says NAR. That’s about a four-month supply.

That compares to last June when there were 350,000 more homes on the market.

Rising Materials Prices

Another challenge cited by NAR is the rising cost of building materials like lumber. Yun called for a reduction in tariffs, even if it was only for a brief time to help homebuilders increase the supply and improve economic growth.

Lost Time and Urgency

There are two other factors that analysts say might be driving the demand in the housing market—lost time and urgency.

First, particularly in regions where lockdowns were longer in the spring and into the summer, there seems to be a sense among buyers that they have to make up for that lost time in their home search.

There’s also a pervasive sense of urgency for Americans who want to take advantage of interest rates and who seem to be aware of the low inventory.

Rising Coronavirus Cases

Finally, another headwind that could impact the housing market is the rising coronavirus cases mostly in Sunbelt states.

Cases spiked sharply in July in states like Florida, where there has been tremendous demand for homes. It’s unclear how that might impact future housing reports, although the death rates have to this point been well below what they were in the earlier days of the pandemic.

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