Housing Market Exceeds Expectations
The year was 2008 and US economy was in the midst of what can only be described as a horrific economic meltdown. There was not a doubt at the time the US housing market played a huge contributing role in that collapse. Today America has again found itself in the middle of a crisis, but this crisis is considerably different. Just like 2008, this crisis poses a threat to our long-term economic stability. This time however the housing market is playing a vital role in our recovery efforts.
As this crisis began to unfold, the $34 trillion housing market, like other industries, was sluggish as it tried to respond to the unique nature of the COVID-19 pandemic. Unlike other industries, however, it has rebounded positively. Surprisingly, it has even exceeded the expectations of even the most seasoned economic strategist.
In June alone, we witnessed a 20% surge in home sales. To amplify this point even further it is important to note that in many regions housing is performing better than it was before the coronavirus pandemic began its assault on the US.
While many people have been surprised by this metric we should not have been.
- First it is important to recall that we had an extremely bullish housing market prior to the onset of the coronavirus outbreak. The reasons for the market performing well did not go away because of the crisis.
- While it is unfortunately true that far too many Americans are now unemployed due to this pandemic, many of us were able to relocate our jobs from the office to our homes. If anything, working remotely motivated potential buyers to intensify their search.
- Another contributing variable is the complexities associated with the crisis have added challenges to urban living which were previously not a consideration. Buyers, it seems, are choosing to forgo the conveniences of urban living for more open suburban or even rural options.
- These factors appear to be among the most relevant considerations. When coupled with historically low mortgage rates that have made getting a home loan as affordable as it has ever been, it is not difficult to be impressed with the current market.
“The market’s performance has been admittedly shocking, amazing, considering that typically when you have surging unemployment, housing activity tends to fall," said Ivy Zelman, CEO of the housing research firm Zelman Associates. "That tends to be the case going all the way back to World War II.”
Obviously, there are many other components that contribute to the insurgent role the housing market plays in our economic recovery. Housing related expenses comprise about 15% of our GDP so the housing market has the footprint necessary to be able to positively impact many other distressed markets.
Caution Still Advised
Regardless, we would be wise to be prepared. This virus is persistent, and powerful. Surges continue to happen around the country. Currently the southeast portion of the United States seems to be suffering the worst of it. That is coincidentally where a staggering 47% of June’s sales were generated. Likewise, the prospect of potential shutdowns can impact perspective buyer’s ability to shop.
“If [states] lock down again, the expectation, certainly on the purchase side, is that activity would fall very, very quickly,” said Mortgage Bankers Association chief economist Michael Fratantoni.
But the data so far indicate housing is resisting the economic carnage.
“Housing is clearly showing a V-shaped recovery even though the rest of the economy is not,” said NAR chief economist Lawrence Yun.
Regardless, it is apparent to most did the housing market is playing an important role in our economic recovery. Check back shortly for Part Two of this series where we look at the housing market in further detai.