- There are early signs that a V-shaped recovery may be underway in the housing market.
- A slew of data this week either showed early signs of recovery, or represented the low from the shock of the coronavirus pandemic.
- This could help lift other areas of the economy, especially those linked to housing, according to James Knightley of ING.
- “As people move to a new home they typically also spend money on new furniture and home furnishings, garden equipment and building supplies such as a new paint job and a bit of home improvement,” said Knightley.
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Like most parts of the economy, the housing market was slammed by the coronavirus pandemic and sweeping shutdowns to curb the spread of disease that kept consumers on the sidelines.
But now, as states across the US reopen, there are signs of a rebound in housing demand that are encouraging and could lead a recovery in other parts of the economy, according to economists at ING.
This week, new home sales jumped 17%, more than economists expected, as buyers rushed back to the market. Mortgage applications to purchase a home dipped slightly this week, but are a staggering 18% higher on the year and last week hit an 11-year high.
And, even though existing home sales stumbled in May, falling 9.7%, the National Association of Realtors expects it was the low point before what’s expected to be a solid rebound.
“At face value this is remarkable given the scale of joblessness in the economy and the ongoing uncertainty relating to the path of Covid-19,” wrote James Knightley, ING’s chief international economist, in a Wednesday note.
All things considered, “the outlook for housing transactions, construction activity and employment in the sector is looking much better than what looked possible just a couple of months ago,” he said.
These early signs of a solid “V-shaped” recovery in the home market could have positive implications for other parts of the economy — especially those that are connected to housing, such as retail sales. “As people move to a new home they typically also spend money on new furniture and home furnishings, garden equipment and building supplies such as a new paint job and a bit of home improvement,” said Knightley.
Going forward, a number of factors are likely to provide a “decent platform” for a recovery in housing and associated sectors. Mortgage rates remain at historic lows, and the Federal Reserve has signaled that monetary policy will remain accommodative for some time.
In addition, the economy is adding jobs, which will further help fuel spending on big-ticket items such as homes, Knightley said.
Still, there are potential risks of a setback, Knightley cautioned. Unemployment remains high, with millions of Americans collecting benefits and filing on a weekly basis. And, while the extra $600 in weekly unemployment benefits have helped support consumer spending, they are set to end in July and it’s unclear that further stimulus will be approved.
That could mean that households that’ve experienced job losses could soon feel significant financial pain. “Should this result in rising mortgage delinquencies and defaults this could derail the recovery phase with forced sales boosting supply and depressing prices,” said Knightley.
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