The Housing Market Could Lead the US Economy’s Rebound
Mortgage Applications and New Home Sales Rise
Recent statistics show that the housing market could help the US recover after an onslaught of coronavirus-related hardships. US mortgage applications are up for the sixth week in a row. Sales of new homes also ticked up in April, despite predictions that they would plummet.
On Wednesday, the Mortgage Bankers Association said its seasonally adjusted Purchase Index was up 8.6% from a week prior. Since April, the index has risen 54%. Additionally, sales of newly built homes were up 1% in April compared to March. This slight increase happened despite lockdowns across most of the country, which prevented open houses and tours of new homes. Though 1% growth might not sound like much, economists expected new home sales to fall 22% in April. This small rise is a welcome sign that economic recovery could be within reach.
Zooming out, Americans’ home-spending habits are not changing as drastically as they have during past recessions. This may be evidence that many people across the country are confident that the pandemic will soon pass and the economy will be back on track.
Reasons for the Housing Market’s Strength
There are four main factors contributing to the housing market’s strength right now, according to Lawrence Yun, Chief Economist at the National Association of REALTORS®. For starters, mortgage rates have reached historic lows. Home prices are also strong because supply is depressed, due to older people staying put, and fewer homes being built. Additionally, the CARES Act put a moratorium on residential foreclosures for people whose mortgage loans are federally backed, which has also reduced the supply of homes available. Lastly, home buyers seem to be confident that home prices will rise despite the threat of a recession.
Interestingly, most homes have been sold to individual buyers who intend to live in them, rather than to investors over the past months. There is high demand for mid- and lower-priced properties, but houses with higher price tags are seeing lower demand and higher supply.
Though data about the housing market’s strength is welcome news for many, some are concerned that the pandemic is widening the gap in affordable housing in the US. Housing prices have gone up faster than most people’s incomes, and the current economic conditions are accelerating that trend.
It is hard to predict how long this pattern will last. As Yun explained , “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.” Despite concerns about rising home prices, many are taking comfort in the housing market’s strength. It seems that consumer confidence is lifting asset prices from houses to stocks. This reflects the fact that many people anticipate that the economy will be able to bounce back from the blows it has been dealt in recent months.
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