Every time we think that this year’s existing home sales wave may have finally crested, another month of data comes in that blows past expectations and proves the folly in underestimating the durability of this recent home sales hot streak. Despite persistent economic uncertainty and the worsening spread of COVID-19, it’s abundantly clear that home shoppers are eager to re-assess their living situations, take advantage of still-low mortgage rates and quickly snatch up the relatively few homes listed for sale. But while low rates and favorable demographic tailwinds should keep buyer demand elevated going forward, steadily rising home prices may constrain some buying activity in the months to come. The median home price rose 15.5% in October from a year before, the largest increase since October 2005 and much faster than overall income growth has been for the past several years. For many buyers at the margin struggling to save a sufficient down payment and put themselves in position to buy, these price increases may erase any benefit that low mortgage rates provide. Pending home sales data do point to some cool down to come, but by now it’s clear: Underestimate the enduring strength of the housing market and the will and creativity of consumers in finding ways to get deals done at your own peril.
Despite additional encouraging news earlier in the week regarding a coronavirus vaccine, mortgage rates fell significantly in recent days and now sit at – or very close to, depending on where you look – their lowest-ever levels. After initial positive news from Pfizer on the apparent success of its vaccine – news that investors interpreted as a large step towards a return to normalcy – rates initially seemed ready to finally move forward after staying near all-time lows for the past several months. But this investor exuberance has since worn off, with COVID-19’s accelerating spread and evidence of waning consumer activity overshadowing any subsequent vaccine-related developments. As a result, most lenders are quoting the lowest mortgage rates ever, something that should buoy homebuyer demand going forward even as home prices rise at a dizzying rate.
Labor market activity appears to be waning alongside consumer activity as the virus surges across the nation. Data released Thursday showed that another 1.1 million people filed for unemployment claims last week, about 55,000 more than the week before. While the increase itself is troubling and poses serious questions about the endurance of the labor market’s recovery, what lies ahead is even more ominous. About 12 million people who are currently unemployed and relying on programs put in place in the Spring are set to lose their unemployment benefits at the end of December, essentially cutting their income to $0. These people are either those who don’t qualify for traditional jobless benefits – including gig workers and the self-employed – or those who have been unemployed for more than six months. And an additional 4.4 million have already exhausted the additional aid provided by the CARES act. Meanwhile, hiring activity in the labor market continues to stall. According to Burning Glass Technologies, there are about 20% fewer jobs posted in the U.S. than there were in early January.
Click here to read past editions of Zillow’s Market Pulse updates.