Americans are behaving very differently than they have in previous recessions — convinced that the coronavirus pandemic will soon pass, many continue to spend money as if nothing has changed.
Driving the news: The latest example of this trend is the Commerce Department's new home sales report, which showed home sales increased in April despite nationwide lockdowns that banned real estate agents in some states from even showing listed houses.
- Sales of newly built homes rose by 1% in April compared with March, dramatically outpacing economists' expectations for a 22% decline.
What we're hearing: "I am quite surprised about the resiliency of the housing market," Lawrence Yun, chief economist at the National Association of Realtors, tells Axios.
- "My reading is that both buyers and sellers believe there will be no price reductions," he adds. "Sellers are listing their homes as if there is no pandemic."
What's happening: Yun says there are four main factors driving the market's strength.
- Dwindling supply as a result of fewer homes being built in recent years and older people not moving.
- Historically low mortgage rates.
- The CARES Act moratorium on residential foreclosures for borrowers with federally backed mortgage loans.
- Consumers who were locked out of the market in 2019 and are confident prices will continue to rise even in the face of the recession.
The intrigue: Much of the purchasing over the last few months has been done by home buyers rather than investors, NAR's data shows, and the most sought-after properties are lower- and mid-priced houses. Higher-priced properties are seeing limited demand and a glut of supply.
Between the lines: While the prices of new homes declined slightly in April, those for existing homes rose to the highest level on record and Yun expects to see them increase by 5% by the end of the year, touching new record highs.
Yes, but: The pandemic looks to be accelerating an "unhealthy development" in the U.S. housing market — the lack of affordable housing for young adults and middle-class Americans.
- "Prices have risen consistently above people’s income growth," Yun says. "It has been happening for six or seven straight years."
Watch this space: The bullish sentiment may not last forever, Yun warns, but he sees no signs that it will fade any time soon.
- "There are unknowns out there, but so far the housing market is surprising on the upside in terms of buyers chasing few supplies and bidding up the price."