Near-Record Home Sales Combine with Record Low Interest Rates

The Mortgage Corner

Graph: Econoday

Existing-home sales rebounded strongly in February, experiencing the largest month-over-month gain since December 2015, according to the National Association of Realtors. Three of the four major U.S. regions saw sales gains, while the Northeast remained unchanged from last month.

Total existing-home sales, https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, shot up 11.8 percent from January to a seasonally adjusted annual rate of 5.51 million in February. However, sales are still down 1.8 percent from a year ago (5.61 million in February 2018).

This tells us several things. Firstly, record-low interest rates are bringing more home buyers into the housing market. Many are first-time millennial generation buyers now in their 30’s, as I said last week. But it’s also a sign of optimism--that consumers see decent job and economic growth ahead.

Single-family resales, up 13.3 percent to a 4.940 million rate, were especially strong in the month which is good news for the housing sector in general. Condo sales were flat at a rate of 570,000.

“And supply is coming into the market which is more good news, up 2.5 percent in the month to 1.630 million. Yet given the surge in sales, supply relative to sales actually fell sharply to a very low 3.5 months from January's 3.9 months. Hopefully the pickup in sales will drive new resales into the market,” said the NAR.

But more importantly, it should drive more new-home construction, which surged 14 percent in January, reversing a 28 percent drop in December because of rising interest rates.

Lawrence Yun, NAR's chief economist, credited a number of aspects to the jump in February sales. "A powerful combination of lower mortgage rates, more inventory, rising income and higher consumer confidence is driving the sales rebound."

And interest rates in general are even lower at this writing. The 10-year Benchmark Treasury yield has dropped below 2.50 percent—its post-WWII low in the 1950s. The 30-year conforming fixed rate for loans guaranteed by the GSEs Fannie, Freddie, FHA and VA, are now back to 3.50-3.625 percent, last seen at the end of the Great Recession.

It will continue to boost home sales and refinances for the foreseeable future, as even former Fed Chair Janet Yellen sees no more Fed rates hikes this year, even the possibility of a rate cut, if economic growth doesn’t pick up this year, when speaking at the Credit Suisse Asian Investment conference in Hong Kong.

Present growth forecasts for Q1 are between 0.8 to 1.5 percent at the highest. Yellen was attempting to dispel the likelihood of a looming recession this year that some pundits are forecasting. But not responsible economists, as businesses are still looking for more the one million new workers, the highest total in decades, according to the Commerce Department’s latest JOLTS report. Job vacancies and quits (voluntary leaves because workers are finding better jobs) are already up 15 percent this year.

Bottom line is this does not translate to a looming recession, but the same steady growth that prevailed before the Republicans’ December 2017 tax cuts, and should now return to the post-recession, 2 percent average GDP growth.

Harlan Green © 2019

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