Existing home sales across the US significantly surpassed expectations, increasing by 26.6% in October on a year-over-year basis as Americans flood the housing market with a renewed demand for home ownership and more personal space amid the coronavirus pandemic.
According to the National Association of Realtors (NAR), the sale of existing home sales posted yet another monthly gain, rising by 4.3% since September, to a seasonally adjusted annualized pace of 6.85 million homes. The October annualized sales rate is the highest it has been since February 2006, but is just short of the 7.1 million unit record set back in 2005.
As NAR chief economist Lawrence Yun notes, the ongoing surge in home sales has now offset all of the losses that accumulated back in the spring, when both sellers and buyers refrained from entering the housing market. Thus, with positive news surrounding the success of COVID-19 vaccines, coupled with mortgage rates remaining steady at 3% coming into 2021, Yun anticipates that existing home sales will rise by 10% to an annualized pace of 6 million next year.
However, the sales pace could be even stronger if the supply of homes was able to keep up with demand. At the end of October, there were 1.42 million existing homes for sale, which amounts to a 19.8% decline compared with October of last year. Given the current sales pace, that amounts to only a 2.5-month supply – the lowest on record. Indeed, the growing shortage of homes is adding further fuel on median home prices, which rose by 15.5% annually to $313,000. This is the highest median price on record, and is largely reflective of strengthening sales in the higher end of the market. Sales of homes that are priced above the $1 million range rose by double, while home sales in the lower range dropped.
The significant shortage of existing homes on the market has been advantageous for US homebuilders, which have been working around the clock to keep up with demand. In fact, mortgage applications in October increased by 33% annually according to the Mortgage Banker’s Association. However, single family housing starts are not increasing fast enough, especially in the lower-priced category.
According to the US Census Bureau, the pace of single-family permits, which serve as a gauge for future construction, remained flat throughout the month of October. Rising costs for lumber and other volatile building materials, as well as a shortage of available land is preventing homebuilders from achieving their full stride. In addition, the flattening of permit activity suggests that the growth of future projects may even be in peril.
Information for this briefing was found via the NAR, the MBA, and the US Census Bureau. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
