It’s headline news for residential real estate. The National Association of Realtors is reporting a mammoth 44.3% increase in pending home sales for the month of May. (1) That’s after a decline during the previous two months when the pandemic was at its peak. Economists see this as a sign of a “V-shaped” recovery that could help lead the economy out of the current recession.
The market for existing homes was pretty much at a standstill for two months. Sellers didn’t want to list their homes out of fear of the selling process — that buyers touring homes would bring germs. Stay-at-home orders also kept the number of buyers to a minimum, especially those who wanted to see a home in person before they signed on the dotted line.
Real Estate Rebound in May
The situation started changing in May as the economy opened back up. NAR says, pending home sales came roaring back to life with an increase in contract signings in every major region. The Pending Home Sales Index was up an average of 44.3% for all regions. That’s a reading of 99.6 on the index. They had dropped 20.8% in March and 21.8% in April.
Since NAR started the index in 2001, which pegged the benchmark of 100 to contract signings in that year. So the current reading is less than a half a point away from that benchmark. If you break the data down into regions, the Northeast saw a 44.4% increase in May; the Midwest was up 37.2%; the South rose 43.3%, and the West saw an increase of 56.2%. NAR says it now expects existing-home sales to hit 4.93 million in 2020, and 690,000 for new homes.
NAR’s chief economist, Lawrence Yun, expects next year to be even better. He says, the numbers will “light up” with a positive GDP, employment, housing starts, and home sales. He expects to see 5.35 million sales for existing homes in 2021, and 800,000 for new homes.
Spectacular Recovery for Real Estate
He says of the latest report on pending home sales, “This has been a spectacular recovery for contract signings, and goes to show the resiliency of American consumers and their evergreen desire for homeownership.” He says, new home sales are now expected to be higher this year than last year and that existing home sales will only be down less than 10% because we missed the spring home buying bonanza. He also believes that this real estate rebound will help “lead the way for a broader economic recovery.”
Unlimited QE and Low Interest Rates
At RealWealth, I give my Housing Predictions in January and Quarterly Updates throughout the year. And during those updates, I always show a slide of the money supply. When more money is circulating, that generally means more funds are available to spend, and when more money is available to spend, the economy booms. This is referred to as stimulus. So when the Federal Reserve announced on March 23rd that they would launch unlimited QE (Quantitative Easing) which basically means the money printing presses were on full speed, I also announced that home prices would stabilize or even rise during the years ahead. This was counter-intuitive, since most people were predicting a collapse of housing with millions of people losing their jobs. But those job losses were temporary, and the government provided direct stimulus checks to the public, along with increased unemployment benefits and big loans to employers that didn’t need to be paid back if employees were kept on the payroll. Additionally, the Fed started buying bonds of all kinds to keep interest rates low.
With that much money pouring into the system, it just made sense that more dollars chasing a limited number of assets would drive values up. Additionally, housing moved up in importance over the past few months, as more and more people realized they might be working from home more often, and cooking at home, and recreating at home and maybe even teaching their children at home. During these “safer at home” times, our industry has become very valuable, thus the rise in pending home sales.
At RealWealth, we have found teams across the country who have exclusive inventory and property management in place for investors looking to buy income property. All 15 teams have had a record number of sales, and a record number of rental applications from qualified tenants looking for a home with a yard. In fact, most have waitlists. You can find out more at realwealthnetwork.com.
(1) NAR Report