pent up demand lifts new home sales
Didier Malagies • June 5, 2020
Mortgage Forbearance , what is going on?
Pent-Up Demand Lifts May New Home Sales 21%, Survey Finds
Wall Street Journal
Source: Wall Street Journal
Written by: Nicole Friedman
Sales of newly built homes surged in May, a new survey shows, the latest sign that the housing market is already recovering from a sharp drop in home sales due to the pandemic.
New home sales rose 21% in May from a year earlier, and the average sales rate per community rose 24% year-over-year, according to a survey of more than 300 U.S. builders conducted by John Burns Real Estate Consulting LLC.
The survey offers an early nationwide snapshot of sales activity around the country. Official figures for May new-home sales are set to be released by the Commerce Department on June 23.
The survey suggests those numbers should reflect a significant improvement over the preceding months, when home-shopping demand plunged in March and April as potential buyers stayed indoors and unemployment rose. Demand has started rising in recent weeks, real-estate brokers say, as stay-at-home restrictions ease and mortgage rates remain near record lows.
“We have definitely seen green shoots in the last month. We’ve definitely seen growth off the bottom,” said Margaret Whelan, chief executive of Whelan Advisory, a boutique investment bank for the housing industry. “The question is whether or not that’s going to be sustainable.”
Mortgage applications for home purchases in the week ended May 29 also rose for the seventh straight week, up 5.3% from a week earlier and 17% from a year earlier, according to the Mortgage Bankers Association.
The spring is typically the most important season for home builders, as families want to buy houses and move in before the start of a new school year. Some of the recent buying represents springtime demand that was delayed by a month or two, said John Burns, CEO of John Burns Real Estate Consulting.
Other buyers who planned to buy homes in 2021 or later are moving up their timelines, Mr. Burns said. “People don’t want to be quarantined again in a place they don’t like,” he said, “so if you were thinking about buying, even next year, you’re like, ‘Let’s do it now.’”
Market watchers caution that sales could slow later in the year as pent-up demand declines, especially if there is another wave of widespread job losses or a resurgence of the coronavirus. The U.S. jobless rate fell to 13.3% in May, the Labor Department said Friday. New-home sales can also be volatile, and a large move one month might not indicate a trend.
Sales were strongest in Florida, up 59% from a year ago, and in the Midwest, up 48% in the same period, the survey showed. Sales in the Northeast, Northwest and Southern California fell from a year earlier.
Homes by WestBay LLC, a builder in Riverview, Fla., recently raised its annual sales forecast to 835 home closings, up from 775 in its earlier outlook.
“I expected April to be very slow, but it was only kind of slow,” said Homes by WestBay President Willy Nunn. The company’s cancellation rate rose to 27% in April, compared with a typical rate of 17%, he said.
“And then May rebounded and was exceptionally strong,” Mr. Nunn said.
New homes, which typically make up about 10% of the market, have benefited as homeowners have opted not to sell during the pandemic, reducing the supply of existing homes in many regions. The total inventory of homes for sale as of May 30 was about 20% lower than a year earlier, according to Realtor.com. ( News Corp, parent of The Wall Street Journal, operates Realtor.com.)
New-home sales unexpectedly rose 0.6% in April from the prior month, according to the Commerce Department. New-home sales are measured when contracts are signed.
Pending sales of existing homes, which are also measured when contracts are signed, fell 22% in April from March, according to the National Association of Realtors. NAR said it expects existing-home sales to bottom in May before ticking higher.
Tim Fritz, an accountant, and Sara Hann, a critical-care nurse, bought a newly built home in Shippensburg, Penn., last month.
“Having uncertainty with the economy right now, obviously it is scary,” said Mr. Fritz, who is 30 years old. “But knowing that we were able to get a lower mortgage rate because of everything that’s going on right now, that was a huge benefit for us.”
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After years of identifying the housing market as unhealthy — culminating in a savagely unhealthy housing market in early 2022 — I can confidently assert that the housing market in 2024 and 2025 is on better footing. This transformation sets an extremely positive foundation for what’s to come. Some recent headlines about housing suggest that demand is crashing. However, that’s not the case, as the data below will show. Today on CNBC , I discussed this very point: what is happening now is not only in line with my price forecasts for 2024 and 2025, but it’s why I am so happy to see inventory grow and price growth data cool down. What we saw in late 2020, all of 2021 and early 2022 was not sustainable and we needed higher mortgage rates to cool things down — hence why I was team higher rates early in 2021. The last two years have ushered in a healthier market for the future of existing home sales. Existing home sales Before the existing home sales report was released Thursday, I confidently predicted a month-to-month decline, while estimating the existing home sales print to be just a tad above 4 million. That’s precisely what occurred — no surprises there, as every month in 2025 has consistently exceeded 4 million. However, it’s important to note that our weekly pending home sales data has only recently begun to show growth compared to last year. We have an advantage over the data from the National Association of Realtors since our weekly pending home sales data is updated weekly, making their report somewhat outdated. The notable surprise for me in 2025 is the year-over-year growth we observe in the data, despite elevated mortgage rates. If mortgage rates were ranging between 6%-6.64%, I wouldn’t have been surprised at all because we are working from the lowest bar in sales ever. Purchase application data If someone had said the purchase application data would show positive trends both year to date and year over year by late April, even with mortgage rates not falling significantly below 6.64%, I would have found that hard to believe. Yet, here we are witnessing consistent year-over-year growth . Even with the recent rate spike, which has clearly cooled demand week to week, we are still positive. If mortgage rates can just trend down toward 6% with duration, sales are growing. Housing inventory and price growth While my forecast for national price growth in 2024 at 2.33% was too low and in 2025 at 1.77% may be too low again, it’s encouraging to see a slowdown in price growth, which I believe is a positive sign for the future. The increase in inventory is also promising and supports long-term stability in the housing market. We can anticipate that millions of people will continue to buy homes each year, and projections suggest that we’re on track for another nearly 5 million total home sales in 2025. As wages rise and households are formed, such as through marriage and bringing in dual incomes, this influx of inventory returning to normal levels provides an optimistic outlook. This trend in inventory data is truly heartening. Conclusion With all the data lines I added above, you can see why I have a renewed optimism about the housing market. If price growth significantly outpaced inflation and wages, and inventory wasn’t increasing, I’d be discussing a much different and more concerning state of affairs. Thankfully, that’s not the case. Historically, we’ve observed that when home sales dip due to higher rates, they may remain subdued for a while but ultimately rise again. This is common during recessions, as I discussed in this recent HousingWire Daily podcast . As you can see in the existing home sales data below, we had an epic crash in sales in 2022 but found a base to work from around 4 million. This trend has shaped the landscape of housing economics since post-WWII, reminding us that resilience and recovery are always within reach. 
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When you're buying a home, it's not just about affording the purchase price or down payment. You’ve got closing costs, moving expenses, and all the “surprise” things that come up after you move in — like needing a new appliance, fixing a plumbing issue, or just furnishing the place. Keeping some cash reserves is smart. A good rule of thumb is to have at least 3-6 months of living expenses saved after the purchase, just in case life throws a curveball. Are you thinking about buying soon or just planning ahead? tune in and learn https://www.ddamortgage.com/blog didier malagies nmls#212566 dda mortgage nmls#324329
