Housing market defies expectations amid economic turmoil
Some areas of housing are actually doing better than they were before the coronavirus began sweeping the U.S.
The U.S. housing market, the epicenter of the nation’s last economic meltdown, is thriving — and that's helping to keep the country afloat during the latest crisis, even as other industries struggle to survive.
While the $34 trillion market faltered at the start of the pandemic, its rebound has far outperformed expectations, with existing home sales surging over 20 percent in June, according to data released Wednesday. Some areas of housing are actually doing better than they were before the coronavirus began sweeping the U.S.
The reason: The market’s already enormously pent-up demand has been stoked by the crisis, despite soaring unemployment. White-collar employees — many of whom are able to work from home and keep getting paychecks — are buying. And analysts believe the pandemic has prompted some millennials, now reaching the prime age for buying first homes, to pull up stakes in crowded cities and head for the suburbs. Securing a home loan, meanwhile, is cheaper than ever, with mortgage rates hitting historic lows thanks to the Federal Reserve’s easy-money policy.
“The market’s performance has been admittedly shocking, amazing, considering that typically when you have surging unemployment, housing activity tends to fall," said Ivy Zelman, CEO of the housing research firm Zelman Associates. "That tends to be the case going all the way back to World War II.”
Housing-related expenditures make up about 15 percent of GDP, so the industry's current strength is alleviating some of the stress on the broader economy less than four months before President Donald Trump — whose own family made their fortune in housing — faces reelection.
To be sure, that could change quickly as more states are forced to go back into lockdown amid a resurgence of the virus. Already, the regions where housing has been strongest — a staggering 47 percent of existing home sales in June were in the South, according to the National Association of Realtors — are now facing significant new outbreaks.
“If [states] lock down again, the expectation, certainly on the purchase side, is that activity would fall very, very quickly,” said Mortgage Bankers Association chief economist Michael Fratantoni.
But the data so far indicate housing is resisting the economic carnage.
“Housing is clearly showing a V-shaped recovery even though the rest of the economy is not,” said NAR chief economist Lawrence Yun.
Despite widespread uncertainty in the wake of the most severe economic shock in generations, Americans still want to buy homes, one of the biggest financial decisions they will make in their lifetimes.
Consider: Home construction jumped 17 percent in June, according to Census Bureau data, while permit applications to build single-family homes rose almost 12 percent. And mortgage applications were up 19 percent in the week ending July 17 over a year ago.
Part of housing’s strength comes down to demographics, as millennials, who make up the largest share of the population, enter the market to buy homes. And while double-digit unemployment would normally dampen demand, the current downturn is heavily lopsided toward certain lower-wage sectors, like the hospitality and food-service industries, whose employees are more likely to rent.