Home Sales Hit Record High in July
For those of us in the housing market who remember the Great Recession, the global pandemic has been a nail-biter. The typical pattern during a recession is that as incomes decline, fewer people buy homes. Since fewer people are buying, fewer homeowners list their homes for sale. The market slows, and sellers may even lower prices to attract buyers or move their homes faster.
A Zillow study of previous pandemics concluded that while home sales dropped dramatically during an outbreak, home prices stayed about the same or suffered a slight decrease. This is logical, since prices are less likely to change when there are few transactions.
But so far, this economic event is anything but typical. And while the future is anybody’s guess, especially with a contentious election looming, the housing market is, so far, making a robust showing.
In mid-March, the number of homes for sale decreased due to homeowner concerns about the risk of contracting the virus. Likewise, homebuyers were concerned about visiting prospective homes, and shelter-in-place orders delayed many from taking action. By mid-April, however, demand for homes increased, and by June, had surpassed pre-pandemic levels.
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The Good News
According to the National Association of Realtors (NAR), existing home sales were up 24% in July over the previous month — the strongest monthly gain in the survey’s history, which goes back to 1968. Further, this is the greatest gain in sales since December of the boom year 2006.
While 2019 was generally considered a strong year for the housing market, statistics also reveal that current July sales were 8.7% higher than July 2019. The increase came amid a combination of falling supply, rising prices and historically low mortgage rates.
Supply of existing homes remains a concern, as resale stock declined to just 1.5 million homes for sale at the end of July, resulting in a projected 3.1-month supply at the current sales pace. This is the lowest July supply recorded in the survey’s history, going back to 1982.
The decline in inventory drove the median sold price up in July by 8.5% annually to $304,100. This is a record high nominal price but also the highest price when adjusted for inflation. When adjusted for inflation, this figure is 3.4% higher than the bubble high set in 2006.
Back then, relaxed mortgage lending policies allowed buyers to purchase with no down payment and little financial documentation. Lending guidelines today are considerably more restrictive, but for those who remain gainfully employed, low interest rates are a boost to qualifying and give buyers more purchasing power.
Lawrence Yun, chief economist for NAR, commented, “I think there is a big societal change concerning housing decisions today. The upper income bracket has been more stable in terms of jobs, and they are taking advantage of record low mortgage rates.”
While mortgage rates spiked briefly at the start of June, sparking concern for many in the industry, they quickly fell back below 3% in July.
Realtors and economists alike are quick to point out the differences between the current real estate market and the one that collapsed in 2008. Glaringly, the housing market itself was the greatest culprit in causing the 2008 recession.
According to Zillow Economist Jeff Tucker, “They discovered all their foundations were cracking under them, causing the financial crisis, causing a recession. It very much snowballed in the housing market. This is a case where we know the cause of the recession is not the housing market.”
What should we expect next? Tucker said, “Once the economy can return to normal, and people can get back to normal, I think the fundamental shortage of homes will still be there. That’s why I don’t see much prospect for prices to fall very far as a consequence of this.”