Friday, November 20, 2020

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But one economist says housing may have peaked for now.

The housing market has been on a tear since the spring. In a trend the Morning Brief has called both a surprising and defining feature of this pandemic-induced recession.

On Thursday, existing home sales were just the latest piece of housing data to exceed expectations, with homes selling at an annualized rate of 6.85 million last month, the fastest pace since April 2007.

Read more: Buying a house: What you need to know about home ownership

At this pace of sales, the housing market’s biggest pre-pandemic problem — a lack of affordable inventory — has only been exacerbated: there is currently just 2.5 months of inventory on the market.

Housing starts data published Wednesday showed new homes under construction rose to the fastest pace since February while permits to build homes are at more than 13-year highs. But this uptick in home construction isn’t likely to do much to ease this tightness in the market.

Back in September, Bloomberg Opinion columnist Conor Sen outlined how major homebuilders like Lennar (LEN) have outlined a cautious approach for the coming years, emphasizing moderate new building and careful debt management.

The scars of the housing crisis are deep and won’t likely be forgotten for some time.

"Homebuilders' confidence has soared even though the actual production has not," said Lawrence Yun, chief economist for the National Association of Realtors. "All measures, such as reduction to lumber tariffs and expansion of vocational training, need to be considered to significantly boost supply and construct new housing."

But a resurgence in the virus combined with this troubling inventory dynamic likely keeps a lid on further gains in home sales in the months ahead.

“The clear message from the mortgage applications numbers, which have been drifting gently downwards since late August, is that home sales have peaked,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. On Wednesday, the weekly report on mortgage applications showed a 0.3% decline in total applications last week.

“We don’t expect a significant reversal of recent gains,” Shepherdson added, “but the period of surging home sales — new and existing — is over. Tighter lending standards appear to be reducing the flow of new applications, and the current downshift in growth in the face of the third COVID wave can’t be helping, either.”

But as Shepherdson notes, a lack of inventory will prevent any softening in home prices even if plans to purchase a home are tempered somewhat.