New Home Sales Surge in July Accompanied by Low Interest Rates

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The National Association of Realtors reported This Week in Real Estate that for every 10 new listings the market is realizing 9 new contracts and as a result homes are going under contract in record time and inventory levels are at historic lows. Below are a few newsworthy events from the fourth week of August that influence our business: 

Insatiable Demand Drives July Pending Home Sales up 15% Annually. U.S. pending home sales rose 5.9% in July, the third consecutive month of gains, fueled by low mortgage rates and unprecedented demand from consumers. The seasonally-adjusted index measuring signed contracts was up 15.5% year over year, largely on the back of pent-up demand from buyers who were unable to strike deals during the spring, said Lawrence Yun, chief economist of the National Association of Realtors. “We are witnessing a true V-shaped sales recovery as homebuyers continue their strong return to the housing market,” said Yun. “Home sellers are seeing their homes go under contract in record time, with nine new contracts for every 10 new listings.” All four regions of the country also saw month-over-month and year-over-year gains in pending home sales. Yun forecasts existing-home sales to increase to a 5.8 million annualized pace in the second half of 2020. That would bring the full-year total to 5.4 million, a 1.1% gain compared with 2019.

New Home Sales Surge in July. New single-family home sales surged in July, as housing demand was supported by low-interest rates, a renewed consumer focus on the importance of housing, and rising demand in lower-density markets like suburbs and exurbs. Census and HUD estimated new home sales in July at a 901,000 seasonally adjusted annual pace, an approximate 14% gain over June and the strongest seasonally adjusted annual rate since the end of 2006. The April data (570,000 annualized pace) marks the low point of sales for the current recession. The April rate was 26% lower than the prior peak, pre-recession rate set in January.  The gains for new home sales are consistent with the NAHB/Wells Fargo HMI, which equaled a data series high in August, demonstrating that housing is the leading sector for the economy. Consider that despite double-digit unemployment, new home sales are estimated to be 8% higher for the first seven months of 2020 compared to the first seven months of 2019.  Sales-adjusted inventory levels declined again, falling to a just a 4 months’ supply in July, the lowest since 2013. Thus far in 2020, new home sales are higher in all regions. Sales on a year-to-date basis are 5% higher in the South, 9% in the West, 20% in the Midwest, and 22% higher in the Northeast.

Highest Home Sales Since 2005. Can it Last? July marked the third consecutive outsized increase in the Pending Home Sales Index (PHSI) produced by the National Association of Realtors® (NAR). It also was the third of three July sales measures to surprise analysts. NAR said the PHSI, a leading indicator of home sales based on newly signed purchase agreements, rose 5.9 percent from 116.1 in June to 122.1. The increase in the PHSI was the smallest gain among the home sales indicators. New home sales rose 13.9 percent in July and new home sales soared 24.7 percent. Nonetheless, the performance is impressive given that the index has more than recovered from the 88.2 level to which it plunged in April as the nation shut down in response to the outbreak of coronavirus. All four regional indices recorded month-over-month gains in contract activity in July. The PHSI in the Northeast rose 25.2 percent to 112.3 in July, 20.6 percent higher than a year earlier. In the Midwest, the index rose 3.3 percent to 114.6, up 15.4 percent from the previous July. The PHSI in the South had a 142.0 reading, up 0.9 percent and 14.9 percent from the two earlier periods. The index in the West rose 6.8 percent to 106.4, an annual increase of 13.2 percent.

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