Existing home sales data were released Monday, and numbers dumped in May as the coronavirus continued to damage the economy, dropping stocks quickly after the release before recovering later. But real estate agents anticipate that this could foretell the bottom.
Sales of existing homes in May sank 9.7% compared with April, to a seasonally adjusted annualized rate of 3.91 million units, according to the National Association of Realtors. Sales dropped 26.6% annually, the most significant yearly decrease in 38 years, when interest rates were about 18%. It is also the slowest sales pace since October 2010.
“Well into the month of June, I think people are much more relaxed, knowing that there is a massive stimulus package in the economy,” said Lawrence Yun, chief economist for the Realtors. “I am very confident that this will be the cyclical low point. Buyers are coming back and listings are coming back.”
The scanty offering of homes for sale didn’t make the situation better either, as potential sellers decide to wait or even remove their listings from the market, fearful of the lack of response during the spiking pandemic. Inventories nationally slumped 18.8% compared with May 2019. At the current sales pace, buyers would need to buy for 4.8 months to deplete the inventory.
Supply declined across all price points, maintaining pressure on home prices. The median price of an existing home sold in May was $284,600, an increase of 2.3% compared with May 2019 and one of the lowest annual rises in over eight years, when the market had just begun to recover from the Great Recession.
“There is evidence that homebuyers came back in big numbers in May,” said Danielle Hale, chief economist for realtor.com. “However, these buyers are now confronting a familiar challenge – not enough homes for sale. Fortunately, shifting preferences and behaviors favoring the suburbs may better enable builders to build and buyers to find what they’re looking for.”
Low rates could assist in a quick recovery in the housing market, especially for homebuilders. Homebuilder ETFs like the Direxion Daily Homebuilders and Supplies Bull and Bear 3X Shares (NYSEArca: NAIL) are benefiting as well, with the fund gaining 1.14% Monday. Mortgage applications to purchase a home also climbed 13% annually recently, according to the Mortgage Bankers Association. The Hoya Capital Housing ETF (HOMZ) is also gaining Monday.
Builders have reported gains in both sales and buyer traffic, even though some of that traffic is online and virtual.
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