Despite widespread uncertainty following the most severe economic shock in generations, Americans still want to buy houses, one of the most important financial decisions they will make in their lives.
Consider: Home construction increased 17 percent in June, according to Census Bureau data, while applications for permits to build single-family homes increased nearly 12 percent. And mortgage applications rose 19 percent in the week ending July 17 more than a year ago.
Part of the strength of housing comes down to demographics as millennials, who make up the bulk of the population, enter the market to buy homes. And while double-digit unemployment would normally dampen demand, the current recession is heavily skewed toward certain lower-wage sectors, such as the hospitality and food service industries, whose employees are more likely to rent.
“It appears that much of the buying activity is from first-time home buyers,” said Fratantoni of the MBA. “It appears that neither are you in a sector of the economy that can function remotely, or you are not.” In fact, first-time home buyers accounted for 35 percent of existing home purchases in June.
Mortgage application data indicates that recent home buyers, who traditionally already have a higher median income than the largest population, are financially secure: the average loan amount for purchase applications in the first week of July it was $ 357,000.
Historically, low mortgage interest rates (the average rate fell below 3 percent last week for the first time since Freddie Mac began tracking it in 1971) have also pushed potential homeowners off the fence. And the increase in time people spend at home amid widespread blockages has led many people to reevaluate their living spaces.
“It is not 2008. People prioritized their car payments because you can drive your car to work,” said Isaac Boltansky, director of policy research at Compass Point. Now, “you are obliged to stay at home. For me, I think the importance of home, both as a concept and as a practical matter, due to orders to stay home, has increased. Home is more important now than it was four years ago months. “
That has led to an increase in demand for new homes with more space for remote work and remote learning. While the resale market still lags behind, new home sales in May increased 16.6 percent from the previous month and 12.7 percent from May 2019.
If anything, the pandemic appears to be accelerating the 30-something-year-old white-collar transition from cramped apartments in crowded urban centers to more isolated single-family homes in the suburbs.
“The shift from the urban core to the suburbs was already underway, but now it appears to be taking steroids,” said Zelman. “We don’t appreciate how consumers would react to the pandemic,” he added, since social distancing and remote work have spurred people to want more space.
Nearly a quarter of respondents to a survey by its members’ National Association of Realtors in late June said they had buyers who had changed the location of where they wanted to buy a home because of the pandemic. Of these, 47 percent said their buyers want to buy a home in the suburbs, and 39 percent said that the buyers wanted to move to a rural area. Others indicated that buyers came to want a home in a small town.
Meanwhile, house prices continue to rise as demand continues to outstrip the supply of housiodong, which is already tense.
Still, the dramatic increase in demand as states began reopening in May and June, now shown in housing data, may be short-lived.
“The big question is whether this recovery is only a temporary and accumulated demand, “said Fratantoni. “We don’t know how far that pent-up demand is going to fall here.”
In fact, the market may have already peaked, given the virus flare up across the country.
At the same time, analysts fear that the isolation of the housing sector from other parts of the economy during this recession makes it less likely that it can start the recovery as it has in the past, as the performance of the real estate market is currently untethered of the plight of the unemployed.
“It won’t be enough to get us out of this recession on its own; I think the recession will be too severe in certain industries, “said Zelman. “Unless we get a vaccine, the house will start to react violently the longer it goes on.”
