Housing remains the bright spot in the U.S. economy: housing starts are up, home sales are growing nationally and in California, buyer demand remains strong as borrowers file mortgage applications at an unseasonable pace and more than twice as many requests for home showings extends through Halloween. However, COVID cases have started to ramp back up in the past 4 days in California, unemployment remains high, and the inventory situation, which is the biggest obstacle to ongoing growth, continues to deteriorate.
Housing Market Remains Unseasonably Strong: California’s September Press Release shows another double-digit gain for home sales and a new all-time high for median home prices in the state last month. In addition, the weekly sales data pending data suggests that the double-digit growth will likely extend through November. Although the number of homes sold is not going up, sales are typically already falling by this time of year, which is causing the year-to-year growth to remain elevated, which is boosting the annual sales levels beyond what was originally envisioned in our 2021 forecast.
REALTOR® Optimism Improves Last Week: In our weekly poll of California REALTORS®, agents were generally feeling more optimistic than the week before as the economic news has remained relatively upbeat. The percentage of respondents that expected listings to increase this week improved by 18%. Expectations for improved sales this week were essentially flat (down 0.3%), but the percentage of REALTORS® that expected prices to continue to rise this week increased by 5%.
Business Spending Picks Up: Capital spending buy businesses bounced back sharply last month as durable goods orders rose by 1.9%. This was much better than expectations and was relatively broad-based across a variety of categories. Plans for future investment were also improving last week, suggesting that the uptick could persist into 2021 as businesses begin to express pent up demand that they postponed during the worst of the crisis.
Fewer Homeowners Struggling with Mortgage Payments: The Mortgage Bankers Association reports that fewer homeowners were in forbearance last week as the percentage fell to 5.9%. Data from CoreLogic shows that 41% of COVID-related forbearances have already exited. Some have gotten current on their mortgage payments again, and roughly 6% have paid off their mortgage in full since entering forbearance. This suggests that some homeowners who ran into economic difficulties were able to sell their properties, which is a positive sign and an option many didn’t have last cycle due to negative equity and falling home prices.
Active Inventory Eroding as Sales Surge: Although the sales trends remain encouraging, one downside of the current “excess demand” environment is that many of the closed transactions have come from existing inventories. The number of new listings being added to the MLS each day has been relatively stagnant for more than 3 months while sales have continued to climb. In other words, we are not replenishing the inventory as fast or faster than homes are being sold, so active inventory is falling. Indeed, the number of active listings in 2020 peaked in April—something that typically doesn’t happen until July or August. This will prevent sales from being as strong as they otherwise might be right now.
Competitiveness Keeping Some Buyers Out of Market: As a result of extremely tight inventory (just 2.0 months of supply statewide with a median time on market of just 11 days from listing date to escrow date), it can be challenging for buyers to actually find and close on a home at these all-time low interest rates. This could be starting to take a toll on buyers as the percentage of California consumers responding that now was a good time to purchase a home in our monthly survey fell for the first time since the onset of the crisis. COVID has made our homes more important to us than ever before and low rates have put the American dream within reach for more potential homeowners, but the lack of homes to put them in is the major barrier to the market today.