Tuesday, June 23, 2020

Have Home Sales Reached Bottom?

The Mortgage Corner

Why is it important to report on the housing market? Because there is a housing shortage (Forbes says up to 3.8 million unit shortfall to date), and the NY Times, among others, is predicting a record wave of bankruptcies of large and small companies that could put even more than the 20 million unemployed already out of work.

Existing-home sales fell in May, marking a three-month decline in sales as a result of the coronavirus outbreak, according to the National Association of Realtors. Each of the four major regions witnessed dips in month-over-month and year-over-year sales, with the Northeast experiencing the greatest month-over-month drop.

Total existing-home sales, https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, slumped 9.7 percent from April to a seasonally-adjusted annual rate of 3.91 million in May, according to the NAR. Overall, sales fell year-over-year, down 26.6 percent from a year ago (5.33 million in May 2019), which shows how deep is this recession.

And the pandemic is reaching “forest fire” proportions according to some experts with no end in sight, so it’s important to ask if existing-home sales have bottomed out their decline in sales in May.

Other indicators, including pending-home future sales, already down 22 percent in April, will be the first indicator that tells us whether sales will drop further and inventories increase from their current lows. It largely depends on how many workers are able to return to work, as I’ve said earlier.

The latest pending-home sales numbers reveal the greatest decline since NAR begin tracking such transactions in January 2001. However, chief economist LawrenceYun expects that April will be the lowest point for pending contracts. We will know next Monday, June 29, when May pending-home sales are released.

“Sales completed in May reflect contract signings in March and April – during the strictest times of the pandemic lockdown and hence the cyclical low point,” said Yun. “Home sales will surely rise in the upcoming months with the economy reopening, and could even surpass one-year-ago figures in the second half of the year.”
 Yun is surprisingly sunny about the rest of this year. “Given the surprising resiliency of the housing market in the midst of the pandemic, the outlook for the remainder of the year has been upgraded for both home sales and prices, with home sales to decline by only 11 percent in 2020 with the median home price projected to increase by 4 percent,” Yun said. “In the prior forecast, sales were expected to fall by 15 percent and there was no increase in home price.”
 I am not so optimistic after seeing the many ups and downs of housing in recent years. We are really in another Great Recession, at least, and the NY Times says more than 6,800 companies filed for Chapter 11 bankruptcy protection last year.  This year will almost certainly have more, according to NY Times reporter Mary Williams Walsh. The flood of petitions from the worst economic downturn since the Great Depression could swamp the system, making it harder to save the companies that can be rescued, bankruptcy experts said per Walsh.

But rather than be the total pessimist, I can hope that we contain this ‘forest fire’ sooner rather than later, as well as the bankruptcy problem by continued government support that boosts spending in such as infrastructure, spending that has been too long postponed.

It might even now have the attention of congress, as the NY Times pandemic graph above isn't lying.

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