Pantheon Macroeconomics

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29th Jan 2021 14:50News

Question of the week: Has the U.S. housing market recovery stalled, or just paused?


U.S. home sales, both new and existing, have rocketed since last spring, blasting through their pre-Covid levels to highs not seen since before the crash of 2007-to-09. But sales have wobbled recently, and the December new home sales numbers made it clear that the hit from the Covid third—and worst—wave is not confined to the hospitality sector.  For the second straight month, new home sales were well below the level implied by the mortgage applications data, which usually are a reliable guide.  The new sales numbers are volatile, with a +/-16% margin of error in the December numbers, but two big shortfalls in sales, each in excess of 100K, strongly suggest to us that the pandemic is hitting housing market activity.  

To be clear, the damage is nothing like as great as in the spring, and the level of new home sales remains higher than we would have expected to see if Covid hadn't happened.  Covid cases and hospitalizations peaked earlier this month, but it will take time for the shift in the pandemic to feed into a rebound in new home sales.  The median buyer of new homes is 47, and the risk of serious Covid disease rises dramatically with age.  Vaccinations will help boost the number of potential new home buyers willing to venture out, but so far only about 20M people have had one shot.  Accordingly, we expect new home sales to remain lackluster this month, but we hope for better in February and, especially, March.  After that, we still expect to see a sustained increase in activity to new cyclical highs in the spring and summer, as Covid finally ceases to be a significant factor.

In the meantime, demand still remains strong enough to drive up prices, because inventory is so low.  The number of new homes for sale has risen only trivially from its October low, and supply stands at a mere 4.3 months of current sales, down from 5.3 months a year ago.  As a result, the trend rate of increase in median new home prices has jumped to about 6%, and rising. The implied real mortgage rate, in other words, is well below zero, and that usually tends to pull in new buyers.

Ian Shephedson

Chief U.S. Economist


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Keywords for: Question of the Week, WC 25th January 2021

Has the U.S. housing market recovery stalled, or just paused?,