U.S. home sales increased by the most on record in June, boosted by historically low mortgage rates, but the outlook for the housing market is being clouded by low inventory and high unemployment amid the COVID-19 pandemic.
The report from the National Association of Realtors on Wednesday, which also showed house prices rising to an all-time high last month, confirmed a shift toward bigger homes and properties away from urban centers as companies allow employees flexibility to work from home because of the coronavirus.
"Sales could see a further boost reflecting low mortgage rates and demand for less crowded spaces though low inventories remain a constraint," said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York. "Restrictions on activity related to virus containment in recent weeks pose a downside risk."
Existing home sales jumped 20.7% to a seasonally adjusted annual rate of 4.72 million units last month. The percentage gain was the largest since 1968 when the NAR started tracking the series. Data for May was unrevised at a 3.91 million unit pace, the lowest level since October 2010.
June's increase ended three straight months of decreases, though home resales remained below their pre-pandemic level. Economists polled by Reuters had forecast sales rebounding 24.5% to a rate of 4.78 million units in June.
Existing home sales, which make up about 85% of U.S. home sales, fell 11.3% on a year-on-year basis in June.
The 30-year fixed mortgage rate is at an average of 2.98%, the lowest since 1971, according to data from mortgage finance agency Freddie Mac. Data last week showed homebuilding increased in June by the most in nearly four years.
A separate report on Wednesday from the Mortgage Bankers Association showed applications for loans to purchase a home increased 2% last week from a week earlier.
The encouraging news on the housing market was, however, overshadowed by a relentless surge in new coronavirus infections, which has prompted some authorities in the hard hit populous South and West regions to either shut down businesses again or pause reopenings, threatening the economy's recovery from the COVID-19 downturn.
The economy slipped into recession in February. A staggering 32 million Americans are collecting unemployment checks.
Stocks on Wall Street were trading higher amid optimism about another round of fiscal stimulus for the economy. The PHLX housing index rose, outperforming the broader stock market. The dollar fell against a basket of currencies. U.S. Treasury prices rose.
Home sales rose surged 26% in the South, which accounts for the bulk of transactions, in June. Sales accelerated 31.9% in the West and rose 11.1% in the Midwest. In the Northeast, sales increased 4.3%.
The NAR said with many companies allowing greater flexibility for employees to work from home amid the COVID-19 pandemic, demand for housing was skewed toward single-family homes, mostly in the suburbs and smaller towns.
Economists believe the migration to suburbs from city centers could become permanent even if a vaccine is developed for the respiratory illness. A homebuilder survey last week showed increased demand for single-family homes in lower density markets, including small metro areas, rural markets and large metro suburbs.
Single-family home sales advanced 19.9% in June. While multi-family home sales shot up 29.4%, they accounted for only 9% of sales, down from the 12% that is considered the norm for the housing market.
There were 1.57 million previously owned homes on the market in June, down 18.2% from a year ago. The median existing house price increased 3.5% from a year ago to a record $295,300 in June. The NAR attributed the modest percentage gain to sales being concentrated in the more affordable markets in the South.
At June's sales pace, it would take 4.0 months to exhaust the current inventory, down from 4.3 months a year ago. A six-to-seven-month supply is viewed as a healthy balance between supply and demand.
Last month, houses for sale typically stayed on the market for 24 days, down from 26 days in May, and 27 days in June 2019. Sixty-two percent of homes sold in June were on the market for less than a month.
First-time buyers accounted for 35% of sales in June, up from 34% in May 2020 and matching the share during the same period in 2019. Individual investors or second-home buyers, who account for many cash sales, purchased 9% of homes in June, down from 14% in May.
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