The "best of times and worst of times" scenario continues in the American residential real estate market, with sales surging amidst an epic pandemic that's surging itself.
We all know about the pandemic, so let's focus on the good news here: The National Association of Realtors (NAR) announced home sales and prices continue to soar, with gains posted in every region of the country. And Freddie Mac (OTCMKTS: FMCC) said mortgage rates have hit a record low once again.
All that was after earlier this week, the Census Bureau reported single-family starts at their highest rates since 2007, and the National Association of Home Builders (NAHB) reported record-high builder confidence.
Sales and prices keep rising as supply meets demand
The NAR said October's existing-home sales grew for the fifth straight month to a seasonally adjusted annual rate of 6.85 million. That's 4.3% higher than September and a sharp 26.6% up from October 2019 -- long before COVID-19. Meanwhile, the national median existing-home price was up nearly 16% year over year to $313,000.
Sales were up in every region of the country. For example:
- In the Northeast, sales were up 4.7% in a month and 30.4% from last year, and the median price jumped 20.2% year over year to $356,500.
- In the Midwest, sales were up 8.6% in a month and 28.1% from last year, and the median price jumped 16.7% year over year to $243,500.
- In the South, sales were up 3.2% in a month and 26.5% from last year, and the median price jumped 15.7% year over year to $272,500.
- In the West, sales were up 1.4% in a month and 22.8% from last year, and the median price jumped 15.1% year over year to $467,800.
The NAR said 72% of homes sold in October were on the market less than a month, and the total housing inventory, currently estimated at 1.42 million units, is only enough to last 2.5 months -- a record low -- at the current sales pace.
Interest rates finding new lows; weak consumer spending an issue
Low interest rates are helping to drive demand, of course, and they continue to fall. Freddie Mac reported today the average rate for a 30-year fixed mortgage is now 2.72%, the lowest in the 50 years the Government-Sponsored Enterprise (GSE) has been tracking rates.
It's also the 13th time the weekly average rate has broken the record this year. This all sounds great for homebuyers and investors, but underlying falling rates is this caveat from Freddie Mac: "Weaker consumer spending data, which accounts for the majority of economic growth, drove mortgage rates to a new record low. While economic growth remains unstable, strong housing demand continues to have a domino effect on many other segments of the economy."
But while the NAR itself and others -- including some congressional leaders -- have expressed concern about the effects of fast-rising prices and overall affordability, the trade group's chief economist expressed confidence in residential real estate continuing to defy the pandemic and continue its gains.
Says Lawrence Yun, NAR's chief economist: "The surge in sales in recent months has now offset the spring market losses. With news that a COVID-19 vaccine will soon be available, and with mortgage rates projected to hover around 3% in 2021, I expect the market's growth to continue into 2021." He forecasts existing-home sales to rise by 10% to 6 million in 2021.
The Millionacres bottom line
While it's a great time to sell a home, for the most part, it makes it harder for real estate investors to find a deal to renovate and flip or rent. And homeowners selling and then buying may find this all to be a wash. That won't be getting any easier if this sales pace continues, as the NAR predicts.
That surge, however, could also well be driven by the widespread availability of COVID-19 vaccines, which would be very good news for the economy that underpins every house sale in America, and for every one of us human beings that occupy this great space.