Housing inventory may get depleted in just 3.1 months

After lenders had some time to digest the new FHFA fee on refinances, rates eked lower. The 30-year fixed rate mortgage fell by 3 basis points while the 15-year mortgage fell by 2 basis points, leaving rates at 3.09% and 2.60% respectively.

current outlook:

Stocks have been hitting new records left and right, with the DOW closing above February’s pre-COVID 2,800 level and the NASDAQ and S&P 500 both hitting record closing highs last Friday. Some of this movement can be attributed to breakthroughs in COVID-19 treatment through the use of plasma transfusions from recovered COVID-19 patients, as well as signs of recovery from the manufacturing and service sectors.

available homes gets depleted to 3.1 month supply

Economy Shows Signs of Life, But Consumers Remain Doubtful

U.S. manufacturing and services both grew, exceeding expectations. In July, they creeped further into expansionary territory moving from PMI readings of 50.9 and 50.0 respectively, to 53.6 and 54.8 respectively. Any score above 50 indicates growth in a sector based on the opinions of purchasing managers. Other notable news include increases in both sales and hiring after five months of declines. However, as a result of the uncertainty surrounding both the pandemic and the upcoming election, expected output dropped slightly.

On the opposite end of the spectrum, consumers are slightly less optimistic about the future. The Conference Board’s Consumer Confidence Index fell for the second straight month, reaching levels unseen since 2014. This is in spite of expectations of an increase to 93.0, as consumer confidence instead fell from 91.7 to 84.8.

Everything Must Go (in the Housing Market)

Existing home sales went up 24.7% in July, beating the former record of 20.2% in June. 5.86 million existing homes were sold in total, with the northeast, west, south, and midwest all reporting double-digit percent growth. As expected, new home sales represented fewer of the total sales—only 901,000. However, like existing homes, it experienced growth month-over month (13.9%) and year-over-year (36.3%). 

The main driving forces of this push in sales: low rates and the limited supply of houses. Home supply continues to drop month after month, falling from a 3.9 to a 3.1-month supply in July. This refers to how many months are left until we run out of available homes, assuming sales continue at their current pace. In the words of Richard Florida, a University of Toronto professor, “What the pandemic has done is taken family formulation moves that might have been made over the next one, two, three, four, five years and compressed them into one, two, three months.”

The Price is Right for Sellers  

According to both the FHFA’s Housing Price Index (HPI) and the S&P CoreLogic Case-Shiller Indices, home prices grew from last year. After decelerating in May, a steady price increase in June indicates that home sales could be recovering from the coronavirus-induced slow down in March and April. While the Case-Shiller index calculated an annual growth of 4.3%, the HPI, which only counts homes financed by Fannie Mae or Freddie Mac, reported an annual growth of 5.4%. Of the metropolitan cities surveyed, Phoenix, Seattle, and Tampa continue to lead in price gains while San Francisco declined by 0.3%.

“More data will be required to understand whether the market resumes its previous path of accelerating prices, continues to decelerate, or remains stable. That said, it’s important to bear in mind that deceleration is quite different from an environment in which prices actually fall.”

CRAIG LAZZARA, Managing Director at S&P Dow Jones Indices
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