Nor Heading Towards A Crash!
A long-standing core thesis has been that the housing market would have the weakest recovery from a crash in the years 2008 to 2019, but it would improve in the years 2020-2024 because U.S. demographics would become favorable for housing.
This is the time frame where we should see 1.5 million total housing starts, and the purchase application index will rise substantially. For housing, it is demographics and mortgage rates that call the show.
At its beginning, the COVID-19 crisis had many consumers and housing professionals alike bracing for a housing crash. And with good reason: We were, and are, facing the most significant health and economic shock in recent modern-day history.
But what many didn’t account for was that the U.S. housing market was somewhat inoculated against the economic turmoil of the COVID-19 crisis by having great demographics for housing along with long-standing low mortgage rates.
U.S. demographics in the years 2008-2019 were too young and too old to generate strong demand for home purchases, and this was one of the reasons we had the weakest housing recovery ever recorded in history, even with low mortgage rates. In fact, purchase applications were lowest in 2014, five years into the last expansion with mortgage rates under 5% for most of the cycle.
Today, the rate of growth in purchase applications is faster on a year-over-year basis than before the COVID-19 crisis, and at a higher level than in 2018 and 2019. For the last four weeks, the rate of growth in purchase applications was +21%, +18%, +15%, and +33%, compared to the same weeks last year.
What recent housing data looked like – The Mortgage Banking Association purchase application data for the last seven weeks on a year-over-year basis look like this: +18%, +13%, +21%, +18%, +15%, +33%, +16%.
The most recent pending home sales were up 44% month to month.
Purchase application of new homes up 54% year over year, according to the Mortgage Bankers Association.
At some point in the future, home prices will fall, and sales will decline year over year, but even when this happens, it will not constitute a bubble crash anytime soon.
Today, we are on an upswing. The U.S. housing market is undergoing a V-shaped recovery. Still, until existing home sales hit 5,770,000 again, the full redemption in existing home sales will not be complete as that was the number we hit earlier this year.
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|Senior Vice President / Area Manager
Fairway Mortgage | NMLS 118767