August 27, 2020,

ECONOMIC UPDATE
By: Anirban Basu
August 26, 2020

Housing Sales Through the Roof

An abundance of housing construction and flawed lending produced the Great Recession. This time is different. This time, the owner-occupied housing segment represents a major source of economic strength in America even as the pandemic lingers.

According to data from the U.S. Census Bureau, the number of new single-family houses sold in July rose 14% from June and 36% from July 2019. This was the most new homes sold in a month since December 2006. Home sales and permits continue to run well ahead of expectations.

According to the National Association of Realtors, existing home sales also surged in July, increasing 25% on a monthly basis after increasing 21% in June. Both sales (+9%) and median prices (+9%) are up significantly since July 2019.

Why is This Happening?

  1. The new normal, with more people searching for places with home offices and a capacity to support social distancing.
    2. Ultra-low mortgage rates.
    3. Lofty apartment rents, especially in the context of new multifamily construction.
    4. Pent-up demand from March and April.
    5. Millennial demographics, with more Millennials forming households, looking for backyards, and seeking highly competitive school systems.

But Where is the Inventory?

It’s embodied within intentionality. The inventory of homes available for sale is down 21 percent since July 2019. At the current pace of sales, inventory would last just 3.1 months, well below equilibrium.

With demand high and supply low, homebuilders are actively pulling residential building permits, amassing softwood lumber (prices of which are rising rapidly), and getting ready to put more housing in place. While the previous decade was largely about luxury apartments built in center cities, the current one will be about new homes in the suburbs.

Three Key Takeaways

  1. COVID-19 has accelerated outmigration from cities, especially the most expensive ones, and produced an influx of interest in suburbs.
    2. Available supply is down. Demand is up. Prices are rising. See? Economics isn’t useless.
    3. Homebuilding is and will be one of the best performing industries for the foreseeable future.

What to Watch

Will there also be more commercial development in the suburbs? It is said that commercial development follows residential, but with so many vacated storefronts, shuttered restaurants, and emptied office suites, we may not experience the uptick in commercial construction that typically accompanies plentiful home building.