Happy summer to everyone, hopefully you are taking some time to get outside with your friends and family to de stress . Last week, I wrote about the general economy not following a V shaped economic pattern, which I still believe, but housing seems to be marching to a very different drum. There are emerging signs in recent data that housing will defy the odds and have a swift v shaped recovery. What do the numbers say? What is driving the V recovery in housing?
What is in the data?
Purchase applications were up 18% compared to the same time last year and up 6% from a week ago, according to the Mortgage Bankers Association‘s Weekly Mortgage Applications Survey. This gives us two back-to-back weeks of positive year-over-year prints for purchase applications in the final weeks of the typical housing market heat months.
Furthermore, the Commerce Department said housing starts rose 4.3% in May to an annual rate of 974,000, below the 1.10 million economists expected, while permits jumped 14.4% to a rate of 1.22 million, slightly lower than the estimate of 1.25 million. Inventory continues to be constrained by builders being very conservative with new starts.
At the same time 10-year treasuries remain near historic lows which has driven 30 year mortgage rates to historic lows of around 3%. Low rates have substantially increased buying power as payments have decreased due to the low rates.
Why is housing outperforming other sectors?
- Cheap financing: the low rates appear to be offsetting the job losses as many of the losses so far are in lower paying jobs that were not the drivers of the housing market.
- Low inventory: Inventory never got ahead of itself like 2008. During the recent recovery inventory was barely meeting demand as costs continue to increase for labor, land, and materials. Furthermore, many skilled laborers left the industry after 2008 leading to a labor shortage which constrained the pace of building. In many desirable markets demand far outstrips supply leading to an appreciating market.
- Work from home trend: The work from home trend is also driving growth in the housing market as houses now are being used differently. Think of two working parents with kids, in the past the kids went to school and parents went to work, now everyone is at home which is creating a huge desire for more space and/or more functional space to accommodate the new paradigm.
Will the good times in housing last?
Taken together, the latest housing numbers suggest increased new-home sales and construction over the coming months. There are signs across the economy that activity bottomed in April and started to improve in May as business reopened and consumers ventured back out, many economists say the housing market is on track for the fastest and most complete recovery of any sector in the economy. Falling interest rates in recent months have more than outweighed the impact of the huge wave of job losses, which appear mostly to have hit younger renters rather than potential home buyers.
The market seems to be pricing in that the good news will continue. The latest data come as large builder stocks have been on a tear in recent months. KB Home (ticker: KBH) and Meritage Homes (MTH), for example, have gained 153% and 128%, respectively, over the past three months.
Summary
It is ironic that housing led us into the last recession, but yet in the current recession it is doing just the opposite. Housing will no doubt outperform other sectors of the economy as rates remain low, inventory remains tight, and demand remains high for different space as a result of the work from home shift.
Resources/ Additional Reading
- https://www.barrons.com/articles/in-boon-for-builder-stocks-housing-market-shows-early-signs-of-a-v-shaped-recovery-51592404547
- https://www.housingwire.com/articles/heres-evidence-of-v-shaped-recovery/
- https://www.fairviewlending.com/106-million-people-say-no-v-recovery/
We are still Lending as we fund in Cash!
I need your help!
Don’t worry, I’m not asking you to wire money to your long-lost cousin that is going to give you a million dollars if you just send them your bank account! I do need your help though, please like and share our articles on linkedin, twitter, facebook, and other social media. I would greatly appreciate it.
Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine, The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
Fairview is a hard money lender specializing in private money loans / non-bank real estate loans in Georgia, Colorado, Illinois, and Florida. They are recognized in the industry as the leader in hard money lending with no upfront fees or any other games. Learn more about Hard Money Lending through our free Hard Money Guide. To get started on a loan all we need is our simple one page application (no upfront fees or other games).