Buyers are snapping up homes faster than they can be listed for sale, as the U.S. housing market continues to resist the pandemic’s economic undertow.
Marking the fifth straight month of growth in the housing market, sales of existing homes rose to a seasonally-adjusted annual rate of 6.85 million in October, a 4.3% increase over September and a 27% increase from October 2019, the National Association of Realtors reported Thursday. At that pace, unsold housing inventory would be depleted in just 2.5 months—the shortest timespan in the more than 20 years the NAR has been keeping track.
- Home sales in October rose for the fifth straight month, despite the pandemic economy.
- If sales continued at their current pace, every house on the market would be sold in just two and a half months, the shortest timespan ever recorded by the National Association of Realtors.
- Ultra-low mortgage rates are fueling demand. The average 30-year fixed mortgage dropped to a new record low of 2.72% this week.
- People are buying houses to cope with remote work and school, but low housing supply and rising prices may stifle growth, economists say.
Inventories of existing homes are being depleted to record lows as buyers take advantage of unprecedented interest rates to get bigger or second homes. Buyers are looking for more space inside and out as homes become remote offices, schools, and gyms in the COVID-19 pandemic. Home builders are scrambling to keep up, breaking ground on more single-family homes in October than at any point in the past 13 years, despite colder weather, government data released Wednesday showed.
“The COVID-induced race for space continues,” economists at Wells Fargo Securities wrote in a commentary.
Mortgage rates continue to set new record lows, and on Thursday, Freddie Mac said the fixed rate for a 30-year mortgage now averages just 2.72%—the lowest in the 49 years the company has been tracking it. As basic economics would dictate, increasing demand and decreasing supply continue to drive up prices: The median price for a single-family home rose to $317,700, less than 1% higher than in September but up 16% from October 2019.
"Considering that we remain in a period of stubbornly high unemployment relative to pre-pandemic levels, the housing sector has performed remarkably well this year," Lawrence Yun, NAR's chief economist, said in a statement.
Indeed, the U.S. unemployment rate is still about double what it was before the COVID-19 outbreak in March, and there were still 11.1 million people out of work in October, according to the latest figures from the Bureau of Labor Statistics. Some analysts think these contradictions will soon catch up to the hot housing market, and that the party is destined to peter out.
“We do expect the pace of sales to slow in the fourth quarter, with a weak recovery, resurgent pandemic and depleted inventories,” said Oxford Economics in a research note.
Wells Fargo economists also foresee the market cooling: “While we expect this strong pace of sales to continue, the pace of improvement may soon slow,” they wrote in their comment, noting that the number of pending home sales fell 2.2% in September. This metric is more of a leading indicator because it tracks homes that are under contract but haven’t yet been sold.
Separately, a report on third-quarter housing activity (July-September) showed 3.25 million mortgages were originated on residential properties of 1 to 4 units during the third quarter, a 17% increase from the second quarter and the most in 13 years. Purchase mortgages accounted for much of that increase, with growth in those outpacing refinancings for the first time in more than a year, according to ATTOM Data Solutions, a property data company.