U.S. existing home sales jumped in June; strong housing market momentum continues

*U.S. existing home sales jumped by 20.7% m/m to 4.72m annualized in June, the largest increase on record. However, after tumbling to 3.91m in May, sales were 18% below February’s level in June (Chart 1). Sales barely increased in the Northeast (+20k to 490k annualized), the region that had the most stringent restrictions on real estate activity, but increased strongly in the Midwest (+110k to 1,100k), South (+450k to 2,180k), and West (+230k to 950k).

*Sales of single-family homes, which typically account for 89% of total sales, increased by 710k to 4.28m annualized, 17% below February’s level, while sales of condos and co-ops increased by 100k to 440k, 27% below February’s level (Chart 2).

*Although existing home sales account for the bulk of home sales, they are counted at contract closings and are a lagging indicator of housing market conditions. June’s sales reflect transactions delayed by the pandemic and sales that were initiated in April. More timely indicators such as mortgage applications and home builder sentiment suggest the strong housing market momentum has continued through July. Pending home sales, which lead existing sales by 2-3 months, surged by 44% m/m in May, pointing to further growth in existing home sales during the summer months (Chart 3).

The National Association of Realtors’ (NAR) Housing Affordability Index, which compares the hypothetical mortgage payment on a median priced house to median household income, has increased steadily over the last 1.5 years because of the declines in mortgage rates (Chart 4). Its latest readings indicate the most favorable conditions for home buying since late 2016.

This improving affordability, driven by new-all-time lows in mortgage rates, has significantly lifted housing demand. The Mortgage Bankers Association’s mortgage applications for home purchases volume index has increased in 11 of the last 14 weeks and is up 19% yr/yr (Chart 5).

The median sales price for existing homes increased to $295k in June, an all-time high, reflecting the combination of strong demand and tight supply of existing homes available for sale. The number of existing homes available for sale declined by 18% yr/yr in June (Chart 6), the 13th consecutive monthly decline, and properties remained on the market for 24 days on average before being sold, down from 27 days in June 2019. Stronger growth in new residential construction is needed to meet demand.

We expect favorable demographics and pent-up demand from younger cohorts to support housing demand in the intermediate term. Indeed, 35% of purchases in June were made by first-time home buyers, up from 32% at the start of the year, an encouraging trend.

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Chart 2:

Chart 3:

Sources: National Association of Realtors and Berenberg Capital Markets

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Chart 5:

Chart 6:

Roiana Reid, roiana.reid@berenberg-us.com

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