In September, the rate of growth in new home sales fell slightly for the first time since April. However, the 3.5% MoM decrease could very well be a temporary setback and isn’t a worrying prospect on its own. It’s especially important for investors to remember that on an annual basis, new home sales were still up 32.1%, as well as 16.9% year to date.
Builders are still more optimistic than they’ve ever been across nearly all measures.
The NAHB/Wells Fargo Housing Market Index measure of builder sentiment set a record high for the second month in a row, jumping to 85 in October, up from 71 a year ago. Anything above 50 is considered positive. September and October are the first two months the index has ever been above 80.
All three components of the index either set records or matched their highest readings. Current sales conditions rose 2 points to 90. Sales expectations in the next six months increased 3 points to 88, and buyer traffic was unchanged at 74.
Indicating an uptick in supply coming through the pipeline, the National Association of Realtors (NAR) reported that total permits rose to 1,553,000 in September, a 5.2% increase from August and up 8.1% YoY. That figure was more than the 1,515,000 estimated by economists polled by FactSet.
US home builders started construction on homes at a seasonally-adjusted annual rate of 1.42 million in September, representing a 1.9% increase from the previous month’s figure and 11.1% YoY. The pace of single-family starts (8.5% MoM) in September was the highest since the summer of 2007, National Association of Homebuilders (NAHB) chief economist Robert Dietz wrote in a blog post.
Multifamily starts, which fell by double digits again, have been the only thing holding back the housing market. Their continual decline has been spurred by a flight from metropolitan markets, creating a huge downturn in demand for apartment and condominium blocks, student housing, etc.
All through the summer, MRP has been covering the urban exodus that has emptied out apartments across high-cost metropolitan areas, driving a wave of housing demand across suburbia and rural markets.
In early June, we noted that Some 420,000 New Yorkers with the resources already made the choice to flee the city between March and May in reaction to the pandemic, according to cellphone data analyzed by the New York Times. In the same month, 39% of city dwellers said the pandemic prompted them to consider leaving for less densely populated areas, according to a Harris poll of 2,050 adults conducted in late April.
More recently, FlatRate Moving company told the Times that the number of moves it conducted between March and August for people moving out of NYC entirely was up 50% YoY.
As Forbes Magazine reported, online mover marketplace HireAHelper has recently seen an abnormally high percentage of migration out of major urban centers like San Francisco, Los Angeles and the Greater Washington D.C. area, and into small and medium-sized cities like Scottsdale, Durham and Columbus.
Silicon Valley and metropolitan areas of Northern California as a whole have been particularly hard hit by this as many of the big tech powerhouses operating in the region have been most receptive to a mobile workforce. A few companies, such as Atlassian, Okta, Slack, Square, Twitter, VMware and Zillow, have already gone declared that many or all employees can stay remote permanently.
Now, the luxury housing market is booming – particularly in popular vacation regions. In the third quarter, luxury home sales jumped 41.5%, the biggest YoY move since 2013 (the year Redfin begun recording this data). In Palm Beach, for instance, Douglas Elliman and Miller Samuel recently revealed that the average home price had risen to $7 million, with contracts skyrocketing 62% during the quarter. In the Hamptons, home sales have surged 51% YoY.
While it will take some time to get hard data on exactly where this demand is coming from, it would not be a stretch to assume that many wealthy city-dwellers are (temporarily or permanently) trading in their high-rise apartments for less-crowded horizons.
Steven Shane, a Compass real estate agent in Aspen, Colorado, said that buyers are coming from all over Texas, Florida, New York and California. He recently told HousingWire that, “if you think about it, it makes a heck of a lot more sense to buy something than to pay rent… For the most part, people can work remotely, and their children might be attending school remotely. So why not be in Aspen, Greenwich, Connecticut, or the Hamptons?”
Record-low mortgage rates have been among the leading catalysts in the housing boom. As of October 22, 2020, Freddie Mac reported that rates on a 30-year fixed-rate mortgage (FRM) had dropped to 2.8%. The rate on a 15-year mortgage declined to 2.33%.
As we noted earlier this week, Fannie Mae, the world’s largest mortgage financier, expects mortgage lending to reach an all-time high of $3.9 trillion for full year 2020, boosted by $2.4 trillion in refinancings. That dollar-volume for refinance transactions is more than double the level seen in 2019, and the highest since 2003.
Though that volume has sparked some concerns, compounded by a surge in homeowners claiming forbearance on their mortgages in the wake of the pandemic, the national forbearance rate fell to about 5.9% in mid-October. That means about 3 million homeowners opted for forbearance, the lowest level since April. As of October 20, the forbrearance rate fell even further to just 5.6%.
In the most recent week of reporting, the Mortgage Bankers Association (MBA) noted that purchase applications fell 2%, but were still 24% higher annually.