December Market Update: Real Estate Rebounds Continue

December 16, 2020

As the year comes to a close, the U.S. real estate market continues to make a remarkable rebound with all things pointing to a strong start in 2021. 

Read on for relevant national housing, economic, and policy insights, courtesy of KW’s in-house research team. When you’re finished, make sure to review your local MLS for the most accurate picture of the market, so you can help your clients navigate the current landscape with confidence.

Indicators for Real Estate 

  • New home sales were up 41.5% year-over-year in October as demand for new homes remains strong, supported by low-interest rates and an extremely low inventory of existing homes 2.5 months – tied with last month as the lowest rate on record on a seasonally adjusted basis. On a monthly basis, new home sales declined by 0.3%. We have seen a marked increase in new home sales in 2020 and they seem likely to remain strong in 2021.
  • The National Association of Home Builders confidence index rose to another record high this month, reaching 90 for the first time. New home sales have been consistently growing year over year for several months. 
  • NAR pending sales were up 20.2% year-over-year in October, and down 1.1% from September. On a monthly basis, pending sales have declined for two months now because of seasonality, but remain well above 2019 levels pointing to strong sales throughout Q4. Pending sales for October will be reflected in November and December sales numbers.
  • The U.S. Census Bureau’s Housing Vacancy Survey has indicated a significant increase in homeownership rates over the last two quarters, with their estimated homeownership rate now near 68% after bottoming just below 63% in 2016. The accuracy of these estimates may be impacted by pandemic conditions, so it is a trend we will continue to watch. 
  • New single-family home starts rose to a seasonally adjusted, annualized rate of 1,179,000 in October, up 6.4% from September and up 29.4% from last October. Low rates and changes in housing preferences driven by the pandemic and remote work are likely driving the surge. New permits for single-family homes rose 20.6% year-over-year, indicating that strong construction is likely to continue in the near term.
  • The share of mortgages in forbearance stands at 5.54% of mortgages or about 2.8 million homes according to the Mortgage Bankers Association. Of the mortgages still in forbearance, 20% of these loans are in the initial stage of forbearance and 78% are in extensions. The remaining 2% are loans that exited and re-entered forbearance. The proportion of new entrants shrinking is a good sign that this metric is on track to continue improving.
  • As of December 6, apartment rent payments for December were down 7.8% compared to the same period last year, according to the National Multifamily Housing Council. This figure has been consistently deteriorating at a slow but steady pace. Its continued deterioration may accelerate if a relief bill is not passed before Congress leaves session.

U.S. Economy Updates

  • Retail sales increased by 0.3% from September to October and were up 5.7% above last October’s levels. Growing retail sales is a good sign for the economy, but this Q3 report was below expectations.
  • Household net worth increased in Q3 2020 driven by the stock market and real estate. This trend continues to bode well for real estate as the drivers for net wealth growth align with strength in housing demand. Home equity withdrawals also rose in Q3, meaning more people are using equity gains to increase their spending power. It was equivalent to 2.3% of disposable income and the highest withdrawal of equity since 2007.
  • Job openings in October were again mostly unchanged at 6.7 million. This is a number that we’d like to see rise, but it is likely being held back by limitations on businesses imposed by the pandemic. This number is likely to be heavily influenced by new shutdowns when November and December numbers are released.
  • The economy added only 245,000 jobs in November compared to 610,000 in October. The unemployment rate declined to 6.7% from 6.9% in October. The labor market recovery has slowed substantially at the end of this year. 
  • Weekly initial claims for unemployment increased by 137,000 the week ending December 5, rising to 853,000 claims from 716,000 the previous week. Continuing claims also began to increase again, rising to 5.8 million from 5.3 million the prior week. Continued claims are now below the highest level ever reached in the Great Recession (6.6 million).

    “The reality is that a vast portion of the workforce is still unable to work directly due to COVID-related issues,” says Jim Talbot, KW Research Director. “With COVID again on a rapid rise, the situation is likely to deteriorate further and require a relief bill to avoid significant consequences that may spill into other economic sectors. This scenario would likely have a more serious impact on real estate than we have seen yet.”
  • The ISM manufacturing index increased by 4% in October, showing continued signs of recovery. The employment index reached 53.2%, reaching above 50 again for the first time since the shutdown; an indication that employment is expanding in the industrial sector.

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